Unveiling the Power of Cyber Insurance
In our digital era administrated by Information Technology (IT) and interconnected computer systems, the importance of safeguarding digital assets cannot be overstated. While cyber threats continue to evolve in sophistication and frequency, businesses are facing unprecedented challenges in securing sensitive information and maintaining operational continuity. This is where cyber insurance emerges as a beacon of protection.
What Is Cyber Insurance?
Cyber insurance, also known as cyber liability insurance, is a specialty insurance product intended to protect businesses from the financial fallout of Internet-based risks, and more generally from risks relating to Information Technology (IT) infrastructure and activities. Hazards of this nature are typically excluded from traditional commercial general liability policies or at least are not specifically defined in traditional insurance products. Insurance for cybersecurity typically includes first-party coverage of losses incurred through data destruction, hacking, data extortion, and data theft. Cyber insurance policies may also provide coverage for legal expenses and connected costs and vary by providers and plans.
Key Features of Cyber Insurance
Cyber insurance is basically designed to provide comprehensive coverage against the financial and operational impacts of mounting cyber threats. Hereafter are the main areas covered by cyber insurance:
- Customer notifications: enterprises are usually required to notify their customers of a data breach, especially if it involves the loss or theft of personally identifiable information (PII). Cyber insurance often helps businesses cover the cost of this process.
- Recovering personal identities: cybersecurity insurance coverage helps organizations restore the personal identities of their affected customers.
- Data breach coverage: cyber insurance typically provides coverage for the costs associated with a data breach, including computer forensic investigations, legal expenses, notification of affected parties, and credit monitoring services for affected individuals. Computer forensic investigations usually follow the standard digital forensic process or phases: acquisition, examination, analysis, and investigation reporting.
- Data recovery: a cyber liability insurance policy usually enables businesses to pay for the recovery of any data compromised by a cyberattack.
- System damage repair: the cost of repairing computer systems damaged by a cyberattack will also be covered by a cyber insurance policy.
- Ransomware protection: as ransomware attacks become increasingly prevalent, cyber insurance often includes insurance coverage for ransom payments and expenses related to negotiating with cybercriminals.
- Cyberattack remediation: a cyber insurance policy will help an enterprise pay for legal fees incurred through violating various privacy policies or regulations. It will also help them hire cybersecurity or computer forensic experts who will enable them to remediate the cyberattack or recover compromised data.
- Crisis management and public relations: assistance with crisis management, public relations, and communication efforts to mitigate reputational damage following a cyber incident.
Who Needs Cyber Insurance?
While every organization’s risk profile is unique, most companies could benefit from purchasing a cyber insurance policy. A wide range of industries that are good candidates for cyber insurance include the following:
- Businesses of all sizes: organizations that create, store and manage electronic data online, such as customer service contact centres, customer sales centres, PII and credit card numbers, could benefit from cyber insurance. In addition, e-commerce businesses can also benefit from cyber insurance because downtime related to cyber incidents can cause a loss in sales and customers. Similarly, any business that stores customer information on a website can benefit from the liability coverage provided by cyber insurance policies.
- Healthcare providers: due to the sensitive information and patient data they collect, store and maintain, healthcare companies are frequently targeted with data breaches and cyberthreats. According to a data breach report by IBM, the average cost of a healthcare breach is $10 million annually. To reduce the financial and legal risks connected to data breaches and Health Insurance Portability and Accountability Act of 1996 (HIPAA) violations, cyber insurance is essential for healthcare organizations.
- Financial institutions: banks and credit unions are also prime targets for cybercriminals due to their sensitive nature of dealing with customers’ personal information such as social security numbers. Therefore, cyber insurance can help these institutions recover from financial damages caused by cyberattacks.
- Government agencies: a huge amount of private and sensitive information is handled by government agencies on many different levels. Cyber insurance can help government institutions guard against cyberattacks and ensure the stability of public services.
- Educational institutions: establishments of learning such as schools, colleges and universities typically store large amounts of personal and academic records for both employees and students, and they are therefore good candidates for cyber insurance.
- Companies with high revenue: due to the potential financial rewards, companies with significant revenue streams can be great targets for computer hackers. To guard against the financial damages brought on by cyberattacks and data breaches, organizations with substantial revenue should consider purchasing cyber insurance.
Factors to Be Considered When Selecting Cyber Insurance Coverage
Typically, cyber insurance pricing is based on the insured corporate entity’s annual revenue, industry sector, and type of coverage and the size of the organization. To qualify for cyber insurance coverage, the individual or entity typically must submit to a security audit by the insurance company or provide documentation with the assistance of an approved assessment tool. The results from a security audit or the documentation from approved assessment tools can factor into the types of coverage provided by the cyber insurance carrier, as well as the cost of the premiums. Policies often vary between different providers. Therefore, it is best to review any details carefully to ensure the required protections and provisions are covered by the proposed cyber insurance policy. The policy also needs to provide protection against currently known and emerging cyber threat vectors and profiles.
Henceforth are some key factors to be taken into account:
- Coverage scope: assess the breadth of coverage offered, including protection for data breaches, business interruption, ransomware, liability, and other potential cyber risks.
- Cyber insurance policy limits and sub-limits: understand the maximum amount the policy will pay out and any sub-limits that may apply to specific types of claims, ensuring they align with the potential financial impact of a cyber incident.
- Exclusions and limitations: scrutinize cyber insurance policy exclusions and limitations to identify any gaps in cyber insurance coverage. Pay attention to specific circumstances or types of cyberattacks that may not be covered.
- First-party and third-party coverage: evaluate the balance between cyber insurance coverage for first-party losses (direct costs to the insured) and third-party liabilities (claims from external parties), ensuring both aspects are adequately addressed.
- Business interruption coverage: examine the extent of cyber insurance coverage for business interruption, assessing whether it includes lost revenue, additional expenses, and the costs associated with restoring operations.
- Ransomware protection: verify that the policy includes cyber insurance coverage for ransomware attacks, encompassing ransom payments, negotiation expenses, and costs associated with mitigating the impact of such cyber incidents.
- Risk assessment and prevention services: determine if the insurance provider offers risk assessment services and proactive measures to enhance cybersecurity, potentially reducing the risk of a cyber incident.
- Claims process: understand the claims process, including how quickly claims are handled, what documentation is required, and the level of support provided by the insurance company during and after a cyber incident.
- Cyber insurance policy retroactive date: clarify the retroactive date of the policy, which defines the period during which cyber incidents must occur to be eligible for coverage. Ensure it aligns with the historical exposure of the company to cyber risks.
- Deductibles and copayments: consider the number of deductibles and amounts of co-payments associated with the cyber insurance policy. A higher deductible may result in lower premiums but could increase out-of-pocket expenses in the event of a claim.
- Claims history and reputation of the insurer: research the claims history of the insurer and their reputation in the market. A reliable and responsive insurance provider is crucial in navigating the complexities of cyber incidents.
- Cost and affordability: compare the costs of different policies while considering the cyber insurance coverage provided. Striking a balance between affordability and comprehensive protection is essential.
- Cybersecurity partnerships: assess whether the insurer has partnerships with cybersecurity experts or offers resources to enhance the cybersecurity posture of the insured organization.
- Cyber-attack remediation partnership: evaluate whether the insurer will handle remediation when some companies have a partnership with an expert team that can handle all aspects of remediation (e.g., legal proceedings, public relations, negotiation with the cyber-attacker, technical support, etc.).
- Cyber insurance policy review and updates: regularly review and update the cyber insurance policy to ensure it remains aligned with the evolving cyber threat landscape and changing needs of the business.
By carefully evaluating the above-mentioned factors, businesses can make informed decisions when selecting cyber insurance, ultimately fortifying themselves against the financial and operational impacts of cyber incidents.
Which Cyber Attacks Are Eligible for Cyber Insurance Claims?
In the aftermath of a cyber security incident, the organization is forced to cover the costs of several consequent corrective actions. Cyber incident response, containment policies, forensic analysis and investigations, litigation, legal proceedings, compliance reviews, additional security infrastructure and policy changes are just some of the detrimental events that can compromise the security of a computer network.
Any cyber event that results in data loss, reputational damage, forensic analysis and investigations, and financial consequences may be covered by a cyber insurance policy, but the coverage depends on the insurance provider company and type of coverage chosen by the affected company.
Because the coverage category determines the insurance policy premiums, cost is often a factor in the company’s choice of an insurance policy. Most policies cover costs related to credentials theft, phishing, ransomware attacks, malware, and insider cyber threats.
What Are the Coverage Areas Within a Typical Cyber Insurance Policy?
Most cyber insurance policies usually consist of a variety of first and third-party coverage. The major sections of a typical cyber insurance policy comprise, among others, the following coverage:
- Cyber Incident Response: this section of a cyber insurance coverage will generally pick up all of the costs involved in responding to a cyber incident in real time, including IT security and forensic specialist support, gaining legal advice in relation to ransom demands and breaches of data security and, the costs associated with having to notify individuals that have had their data stolen.
- Business Interruption: this crucial section covers the costs of getting your data and applications repaired, restored, or recreated in the event that your computer systems are damaged as a result of a cyber event. It also reimburses the loss of profits as a result of interruption to your business operations caused by a cyber event or your prolonged IT system downtime.
- Cybercrime: employees at businesses of all types and sizes may not know what to look out for when it comes to phony links or possible malicious files. Clicking or downloading these can lead to a range of issues including extortion, where hackers threaten to expose data that they’ve accessed, and social engineering, where cyber attackers imitate someone to steal money.
- Privacy Liability: this section covers third party claims arising out of a computer network security or privacy event, be it your transmission of harmful malware to a third party’s systems or failing to prevent the theft of personal data. This section also covers regulatory and PCI fines, penalties and card brand assessments, which is particularly important for retail businesses.
To sum up, we are observing nowadays that embracing the digital age comes with its own array of challenges – most particularly the increasing threat of cyber-attacks and cyber insurance has been the response to these challenges. Cyber insurance is a category of insurance that serves as a vital shield for businesses and individuals, offering financial protection against the multifaceted risks pertaining to cyber incidents.
Choosing the right cyber insurance policy requires careful consideration of factors like coverage scope, policy limits, exclusions, and deductibles. Knowing which cyber attacks are eligible for compensation allows company managers to maximize their cybersecurity investments while protecting the valuable assets of their business operations. Identifying the major sections of a typical cyber insurance policy enables organizations to better choose which policy is most suitable to their needs.
Furthermore, businesses can benefit from proactive measures provided by some insurers, such as risk assessment services and partnerships with cybersecurity experts, aiming to enhance overall cybersecurity resilience. Knowing that the business is financially protected in the event of a cyber incident provides peace of mind. This empowers the business to focus on innovation and expansion without the perpetual concern of cybersecurity threats and cyber-attacks.
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Special thanks to the National Research Council of Canada for their financial support
Author: Emem Essien
Executive Editor: Alan Bernardi
Reviser, Proofreader & Translator: Ravi Jay Gunnoo