Does My Business Need Cyber Insurance?

A 2023 survey by Travelers showed that nearly 25% of businesses have experienced a cyber crime and the percentage of cyber crimes reported has more than doubled since 2015.^[1] In an era marked by escalating cyber threats, cyber insurance offers protection against internet-based risks, covering costs related to incidents like data breaches. While strong cybersecurity defenses are paramount, cyber insurance complements these measures, acting as a financial safety net.

Find out how much cyber insurance costs and how to get coverage to protect your online data.

Key Takeaways Cyber insurance costs an average of $132 per month. 55% of individuals are less inclined to engage with businesses that have experienced a breach. Cyber insurance shouldn't replace cybersecurity defenses but complement them. Cyber liability insurance covers financial losses from digital crimes, which might impact a company directly or affect its customers and vendors. Protecting a business from cyber threats requires a combination of technological measures, policies, employee training and continuous monitoring.

What Is Cyber Insurance?

Cyber insurance is specialized commercial coverage that helps businesses with recovery costs when they fall victim to a cyber crime, such as investigation expenses, customer notifications and reputation management. The need for cyber insurance has become more evident, especially with the majority of cyber claims involving security breaches, system glitches, employees putting information at risk, theft or loss of customer/client records and extortion or ransomware.^[1]

In addition, small business owners may further understand the need for cyber insurance after considering the following information:

• In 2021, small businesses with under $25 million in revenue experienced a 40% increase in ransomware attacks and a 54% increase in funds transfer fraud incidents.^[2]
• Small businesses faced over 700,000 cyberattacks, causing damages worth $2.8 billion in 2020.^[3]
• 55% of shoppers are less inclined to engage with businesses that have experienced a breach.^[4]
• 51% of smaller businesses have their website offline between eight to 24 hours.^[5]
• 51% of the small businesses hit by ransomware pay the demanded amount.^[6]

What Is Cyber Liability Insurance?

Cyber liability insurance protects your business when you are sued by second or third parties such as your customers or clients for losses resulting from a cyber attack. For example, if a customer sues your accounting firm because their identity was stolen after your systems were hacked, cyber liability insurance would pay for your attorney fees, settlements and other legal defense fees.

This type of coverage is usually included with cyber insurance. The distinguishing factor is that cyber insurance covers your losses, such as investigation and PR expenses. Meanwhile, cyber liability insurance pays for second- and third-party losses, which usually involve your customers or clients.

How Does Cyber Insurance Work?

When a company seeks a cyber insurance policy, it undergoes a risk assessment by the insurer. This evaluation of the company's cybersecurity practices and overall cyber risk profile determines the premium the business will pay.

Once insured, if a company faces a cyber incident, the policy can cover various associated costs. For instance, in the event of a data breach, the policy might shoulder expenses like notifying affected customers, offering credit monitoring and even covering legal fees from potential lawsuits. Additionally, insurance can assist in restoring the company's reputation through public relations support.

Moreover, cyber security insurance aids businesses in their recovery process post-incident. This support can take the form of helping restore lost data or connecting the business with cybersecurity experts to reinforce its digital defenses.

What Does Cyber Insurance Cover?

A cyber insurance policy should be customized to the needs and circumstances of your business but cyber insurance will usually cover the following:

• 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 revenue due to downtime
• Cyber extortion payments necessary to recover the use of your system
• System improvements to deter future attacks

What Isn’t Covered?

Remember, cyber insurance is not all-encompassing and does have holes, such as:

• The financial value of intellectual property pirated by data theft
• Opportunity cost due to time lost to recovering from a security breach
• Money transfers made in response to fraudulent requests
• Acts of war

What Types of Businesses Need Cyber Insurance?

Does your business rely on computers or store data and financial information about its customers, such as an eCommerce platform or perhaps even a vending machine business? 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, like a restaurant?

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.

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 cybercrime.

How Much Does Cyber Insurance Cost?

The average cost of cyber insurance is $1,589 per year ($132 per month).^[7] Cyber insurance premiums are influenced by various factors. Deductibles play a pivotal role: a lower deductible, while enabling coverage for a lower out-of-pocket cost, leads to higher insurance premiums.

The type and size of a business also sway costs; for instance, a small manufacturer might pay less than a hospital due to the sensitivity and volume of data they handle. Premiums can also rise with increased revenues or larger employee counts.

The nature of the data stored further impacts costs. Businesses with vast amounts of sensitive data, like financial institutions or medical offices, face higher premiums. Similarly, companies that handle more sensitive records or financial transactions will generally see increased rates.

Can I Replace Cybersecurity Defense With Cyber Insurance?

Cyber insurance for small business owners is not a substitute for cybersecurity defense. Instead, it should work alongside cybersecurity measures as part of a cyber risk management strategy. Insurers assess a company's cybersecurity strength before offering coverage. A robust security system can lead to better insurance terms because a superior defense lowers the likelihood of your business filing a claim. On the other hand, a weak cyber defense system may result in limited and more costly coverage options.

How Else Do I Keep My Business Safe From Cyber Attacks?

Protecting your new business or old business from cyber-attacks requires a multi-faceted approach that combines technological measures, policies and continuous training. Here's a condensed guide:

• Implement strong security practices: Use firewalls, encrypt sensitive data and deploy intrusion detection systems. Regularly update and patch all software, including operating systems, to fix vulnerabilities.
• Educate employees: Ensure that employees use strong passwords and understand the procedure for reporting suspicious activities. In addition, warn them of phishing emails as 15% of business cyber claims analyzed involved email compromise according to a 2022 study by NetDiligence.^[8]
• Access control: Limit access to sensitive information. Only provide access to employees who absolutely need it. Use multi-factor authentication for accounts with privileged access.
• Back up regularly: Store backups in a secure location, ideally both onsite and offsite. Regularly test backups to ensure they can be restored quickly in case of a ransomware attack or data loss.
• Monitor network activity: Use tools to monitor network traffic and set up alerts for unusual activities. This can help in early detection of potential threats.
• Create an incident response plan: Outline steps to take if a breach occurs. This plan should include communication protocols, steps to isolate affected systems and procedures to recover lost data.
• Regular audits: Periodically assess your security infrastructure and practices. Consider hiring third-party experts for vulnerability assessments or penetration testing.
• Stay informed: Cyber threats evolve rapidly. Stay updated about the latest threats and best practices in cybersecurity.

How To Get Cyber Insurance for Your Small Business

When shopping for cyber insurance coverage as a sole proprietor or an LLC, it's recommended to obtain at least three to five quotes from different carriers. Insurance companies will request information about your business, such as the industry you operate in, your location, annual revenue, the type of data you store and the number of employees. They might also ask about your existing cyber security measures and past history of data breaches or cyber incidents. Providing this data for each carrier can become repetitive and time-consuming.

Thankfully, leveraging an insurance marketplace like SmartFinancial can simplify this procedure. Instead of re-entering your business details repeatedly, fill out a single questionnaire about your cyber coverage needs and budget. After this, you'll have the opportunity to get matched with a personalized cyber attack insurance policy tailored to your business, sometimes within just a few minutes. Simply enter your zip code below to receive your FREE cyber insurance quote.