Cyber insurance is a type of insurance that helps businesses minimize or avoid the financial risks that stem from cyberattacks. Depending on the plan, coverage can include data recovery, legal fees, and even ransomware payments. Learn more about how cyber insurance works and why businesses should invest in a policy amid rising cyber threats.
How does cyber insurance work?
Cyber insurance, also called cyber liability or cybersecurity insurance, is a policy your business can use to cover potential expenses due to data breaches or other malicious cyberattacks. Traditional business insurance applies to more general liabilities and does not cover cybersecurity issues, so this kind of insurance is often added as a supplemental policy.
What are the two main types of coverage?
Cyber liability policies typically offer two different types of coverage: first-party and third-party. First-party coverage addresses the costs your business would directly incur from a breach or attack, like bringing in an incident response company, while third-party coverage addresses any liability claims made against you. Brian Schlechter, Director of IT at Bit-Wizards, says the type of coverage you need depends on the type of business you operate.
"If you run a lawn maintenance company that doesn't depend on online systems to provide services, you may only need first-party coverage since you can still support your customers," he explains. "If you run a widely used app that stores personal information for thousands of users, you'll want third-party coverage to address the heightened risks if your user data leaks or your services go down."
What does cyber liability insurance cover?
While coverage varies between insurance providers and policies, some of the costs that cyber insurance supports can include:
- Lost revenue from periods of downtime
- Ransomware payments for stolen data
- Customer notifications after a breach
- Repairs for damaged IT equipment
- Cyber incident investigation and remediation
- Legal fees from court cases or lawsuits
- Customer damages and settlements
- Data recovery and restoration efforts
- Credit monitoring services for customers
- Regulatory investigations and fines
What isn't typically covered by cyber insurance?
Cybersecurity insurance offers coverage for many expenses related to a cyberattack or data breach, but these policies are rarely all-encompassing. Just like other types of insurance, cyber liability coverage is limited based on what occurs and what preventative measures your business takes. Schlechter emphasizes that cyber insurance covers malicious acts, while negligence or internal factors fall outside of traditional coverage.
"Just because you buy a cyber liability policy doesn't mean you're protected against every threat that has to do with technology," he says. "Regardless of whether one of your employees accidentally falls for a phishing attack or deliberately sabotages your business, not all policies will cover every threat and its associated costs."
Some examples of issues that are not covered by most cyber insurance policies can include:
Do I need cybersecurity insurance for my business?
With ever-evolving cyber risks and costs on the rise, your business can significantly benefit from the protections offered by a cyber insurance policy. Until now, you may be among the many companies that are highly concerned about cyber risks but still choose to skip insurance. The 2024 Risk Index from Travelers Insurance shares that 62% of business owners worry about cybersecurity, but only 47% have cyber liability insurance.
Depending on your industry and the type of customer data you handle, cyber insurance can be especially worthwhile after considering the overall cost. According to Progressive, annual cyber insurance costs can range from $500 to over $5,000 based on your operations and needs. With a more manageable cost for businesses of all sizes, Schlechter says it's an easily justified add-on.
"Many insurance providers offer cyber insurance as an upsell, and it's extremely worthwhile—even if you're a small business with a handful of employees," he explains. "If your business suffers from a cyberattack that causes losses to productivity and consumer trust, the costs of managing and recovering from the aftermath far outweigh the policy's price."
How do I get cyber liability insurance coverage?
The best way to begin the cybersecurity insurance process is by checking with the company that provides your company's general liability insurance. If your insurance provider doesn't offer policy options, you should shop around with different companies to find the best plan for your business. It's important to remember that coverage can take several months to go into effect, so start the process as early as you can.
Depending on your company's size and industry, the actual process of getting a cybersecurity insurance policy can vary. If you're a small business, you may need to fill out a form that asks whether you follow certain best practices. If you run a medium or large company in a regulated industry like healthcare, you may need to complete a security audit or provide documentation to qualify for coverage.
How can I lower my company's risk profile for cyber insurance?
Cybersecurity insurance policies and costs depend on the risks your business faces, so it's essential to do what you can to determine your company's risk profile and implement tools to lower it. From conducting a network assessment to planning an infrastructure optimization, you need to identify and mitigate potential vulnerabilities. Schlechter believes failing to do so is like trying to buy home insurance with an outdated roof.
"If you're looking for a new home insurance policy but have a roof that's overdue for a replacement, it's doubtful that an insurance company will want to offer you coverage," he says. "The same goes for cybersecurity insurance providers—if your business has significant IT hazards, they may hesitate to offer you coverage or increase your premiums."
Here are some steps you can take to reduce your business IT risk profile:
- Use multifactor authentication (MFA) and access management policies to protect your data and limit unauthorized access.
- Follow a regular schedule for updating your devices and programs with performance and security patches.
- Create and test data backups to make sure it's easy to restore files in the event you experience data loss.
- Make and follow a business continuity and disaster recovery (BCDR) plan that minimizes downtime and boosts resiliency.
- Conduct regular cybersecurity training for your employees to keep them up to date on new threat trends and best practices.
Partner with Bit-Wizards for more reliable, secure IT
Unless your business specializes in IT services, it’s challenging to stay on top of cybersecurity threats and productivity opportunities. Every company depends on technology to be successful and secure, and working with a managed service provider (MSP) can take the hassle out of all things IT. When you need a partnership that understands your business and offers a custom-fit approach, Bit-Wizards is here to help.
With our Managed IT Services (MITS), your business gets support that delivers technical expertise with a human touch. Whether you need assistance with everyday issues or guidance for long-term projects, our Wizards are here for you. We can help your business meet compliance guidelines, navigate the cyber insurance process, and achieve anything else that supports your current goals and future plans.
Ready for a partnership that boosts your team's security and success? Get in touch.