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What Is Cyber Insurance?

Small business owners know that when there's a computer problem, the whole operation can grind to a halt. Unfortunately, the rise in cyber crimes puts a business's computer system and data under more threat than ever before.

After a cyber attack, it can cost time and money to get a system back online. Businesses may even be liable for data breaches of sensitive information about customers. That's why more and more business owners are opting for cyber insurance.

Cyber liability insurance is a type of business insurance policy that can protect your enterprise from a variety of cyber-crime related losses. It can be purchased as a stand-alone policy or as an addition to your current business insurance policy.

Because of the increase in frequency of cyber attacks, cyber insurance is increasingly becoming a standard part of doing business for large, multinational corporations all the way to small mom-and-pop operations.

This article will help you figure out whether your small business needs cyber insurance. Topics covered include:

Who Needs Cyber Insurance?

Does your business rely on computers or store data about its customers? If so, there's a good chance you need cyber insurance.

Think about how your business uses technology. Do you use computers to place orders with suppliers, process customer purchases, store sensitive data, manage cash flow or promote your business?

Imagine how your company's ability to function would be impacted if your computer system were frozen by a malware attack. Worse yet, imagine the potential cost of having your bank accounts breached or your customer data stolen by a hacker.

Cyber liability insurance is a type of business insurance policy that can protect your enterprise from a variety of cyber-crime related losses.

These risks are magnified if you regularly interact with customers or other organizations online. Your online presence may be a key driver of your business growth, but it can also be a point of vulnerability that makes you a target for cyber crime.

It's difficult to do business in the 21st Century without operating online. That means it's also risky to do business these days without cyber insurance.

How Common Is Cyber Crime?

The need for cyber insurance is becoming a necessity for most businesses as cyber attacks become increasingly common.

According to FBI crime statistics, incidents of cyber crime in the United States have accelerated rapidly over the past five years, in terms of both frequency and financial consequences.

number of US cyber crime complaints has grown rapidly

...has grown rapidly, as well as

financial losses from cyber crime rising quickly as well in billions of us dollars

These figures add up to a total of 2,211,296 incidents over the past five years, with $13.3 billion in losses as a result.

Common types of cyber crime include:

  • Phishing schemes, in which fake emails are sent in an attempt to get people to click on a malicious link and/or divulge sensitive information.

  • Extortion threats, often in the form of ransomware, through which cyber criminals take control of a person's or organization's computer system and won't allow the owner of that system to resume normal use unless they pay a bribe.

  • Data breaches, which can be used for anything from identity theft to pirating of intellectual property.

Businesses are frequent targets of cyber crime, because both they and their customers can represent tempting targets. For instance, they may have trade secrets or other valuable information that is worth stealing. Also, since businesses deal with higher dollar volumes than the typical individual, the potential financial reward for criminals is enticing.

The real gold mine for cyber criminals may be a corporation's customer data. Access to that can be a gateway to bank account information, social security numbers and other sensitive data.

The need for cyber insurance is becoming a necessity for most businesses as cyber attacks become increasingly common.

As an example, in 2020 the FBI received 19,369 complaints of business email accounts being compromised. Those accounts can then be spoofed by cyber criminals to perform fraudulent transfers of funds or to solicit sensitive information from the company's customers.

This kind of crime hurts businesses on multiple levels. It can cost those businesses money directly, while also causing lasting damage to their reputation.

What Is Cyber Liability Insurance?

Besides putting various best practices in place to protect themselves from cyber theft, businesses can buy cyber insurance to protect themselves in case someone successfully hacks their system.

Cyber liability insurance is a type of insurance policy that can cover a company for financial losses resulting from various digital crimes.

There may be first party losses, which impact a company directly, and/or second party losses in which the company's data is used to steal from their customers and vendors.

There may be a need for insurance to cover direct losses, liability to other organizations plus the cost of getting the operation back up and running with improved security to protect against future breaches. Choosing a cyber liability policy should be a decision made at the highest level.

Find Affordable Cyber Insurance

How Much Does Cyber Insurance Cost?

The cost of cyber insurance varies greatly and according to the specifics of each situation. You may see advertisements for cyber liability insurance policies costing less than $20 a month, but be wary of any kind of one-size-fits all coverage. Choose a policy after careful consultation with a qualified business insurance agent.

Cyber insurance for a small business can cost anywhere from $250 to over $2,000 a year, depending on the size of the company, its risk factors and the coverage limits of your policy.

Whatever your cyber insurance cost turns out to be, the potential cost of a data breach may make it look very reasonable by comparison: According to auditing company PwC, in 2020 the average cost of a data breach in the US was $8.6 million.

Worldwide, for every dollar spent on cyber liability insurance there are nearly $1,400 in cyber security losses, making that insurance a relatively cost effective form of protection.

What Does Cyber Insurance Cover?

A cyber insurance policy should be customized to the needs and circumstances of your business. However, below are cyber insurance covers and does not cover:

What is covered by cyber insurance

  • Forensic investigations to discover the source and nature of the problem.

  • Litigation expenses arising from a cyber attack

  • Regulatory fines resulting from information breaches or service interruptions

  • Crisis management expenses, which may involve everything from extra personnel to damage control PR

  • Lost revenues due to down time

  • Cyber extortion payments necessary to recover use of your system

  • System improvements to deter future attacks

What isn't covered by cyber insurance

  • The financial value of intellectual property pirated by data theft

  • Reputational costs resulting from a security breach, which could cost you current customers and future business

  • Opportunity cost due to time lost to recovering from a security breach

  • Money transfers made in response to fraudulent requests

  • Acts of war

Cyber insurance can cost anywhere from $250 to over $2,000 a year, depending on the size of the company, its risk factors and the coverage limits of your policy.

Does Cyber Insurance Cover Major Cyber Security Events?

Some cyber attacks are not targeted at a specific business, but involve the widespread introduction of malware that can freeze systems and make them vulnerable to data breaches. The dissemination of malware can show up on your system in the form of denial-of-service attacks which limit your access to the internet. Or, the hacker may exploit vulnerabilities that allow for ransomware to hold your computer system hostage until you pay to get control back. Malware can also create gateways for information theft that could leave you liable to your customers for losses.

In today's climate, there's no telling where the next attack will come from or what form it will take. When it comes to cyber insurance, the best approach is to not only aim for broad coverage that addresses your specific business needs.

Cyber Insurance FAQs

What are some examples of cyber crime?

According to FBI statistics, phishing is the most common type of cyber crime. This involves sending out fraudulent emails or texts to solicit responses that compromise people's data. The second most common type is non-delivery/non-payment scams, where a cyber criminal posing as a customer or a vendor gets an organization to send goods or money in exchange for something that is never provided.

Would my homeowner's insurance cover my home-based business for cyber theft?

Probably not, for two reasons. Homeowner's policies often don't cover consumers against all the types of losses that can happen to attacks via their personal computers. Plus, a homeowner's policy may only apply to personal losses and not business ones.

Would cyber insurance cover me from identity theft?

Some programs combine cyber security measures with insurance that helps you recover from a breach of personal data, which may include identity theft. When it comes to business insurance, check the specifics to see what kind of identity theft a policy will provide to your business, to you and to your employees and your customers.

Find Affordable Cyber Insurance

Since cyber insurance should be customized to the particulars of your business, finding cost-effective coverage is a two-step process. First, find a policy that spells out the specific types of coverage you need. Second, compare competitive quotes for that type of policy to get the best price available.

A standalone cyber liability insurance is going to cost you something, but not having it could cost you far more. Enter your zip code below and answer a few questions to get free quotes for a business insurance policy that includes cyber insurance.

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