Cybersecurity insurance has emerged as a response to the increasing frequency and severity of cyber-attacks.
As organizations become more reliant on digital systems, the potential risks and costs associated with data breaches, ransomware attacks, and other forms of cyber-attacks have increased significantly. Globally, the cost of a data breach for companies is $3.86 million on average. Cybersecurity insurance is designed to mitigate these risks and costs by providing financial protection to organizations in the event of a cyber incident.
What is cybersecurity insurance?
Cybersecurity insurance is a type of insurance policy designed to protect organizations from the financial losses and liabilities associated with cyber-attacks. It provides a way for organizations to transfer some of the risks associated with cyber-attacks to an insurance provider, helping to reduce the potential financial impact of these incidents.
What is covered under cybersecurity insurance?
Cybersecurity insurance policies typically cover expenses related to data breaches, ransomware attacks, and other forms of cyber incidents. This may include costs associated with breach response, data restoration, and legal and regulatory compliance, as well as liability for damages to third parties, business interruption, and other related expenses.
The coverage provided by cybersecurity insurance policies can vary significantly depending on the insurer and the specific policy, but here are some examples of what a typical cybersecurity insurance policy may cover.
First-party coverage: This covers the direct costs incurred by the policyholder due to a cyber incident. This may include expenses such as:
- Forensic investigation costs to determine the cause and extent of the cyber incident
- Notification costs to inform affected individuals or organizations of the data breach or other cyber event
- Credit monitoring costs to monitor affected individuals’ credit reports for identity theft
- Business interruption losses resulting from the cyber incident
- Data restoration costs to recover or replace lost or damaged data
Third-party coverage: This covers liabilities the policyholder may face due to a cyber incident. This may include expenses such as:
- Legal fees associated with defending against claims or lawsuits resulting from the cyber incident
- Settlements or judgments resulting from claims or lawsuits
- Regulatory fines or penalties resulting from the cyber incident
- Public relations costs to manage the reputational impact of the cyber incident
What is not covered under cybersecurity insurance?
While cybersecurity insurance policies can offer valuable protection against a wide range of cyber incidents, there are certain events and losses that may not be covered by these policies.
Some common exclusions or limitations found in cybersecurity insurance policies include:
- Known vulnerabilities: Many cybersecurity insurance policies will not cover losses that result from a known security vulnerability that the policyholder failed to address in a reasonable timeframe.
- Intentional acts: Cybersecurity insurance policies generally do not cover losses resulting from intentional acts such as fraud or insider theft.
- War and terrorism: Many cybersecurity insurance policies exclude coverage for losses resulting from acts of war or terrorism.
- Physical injury or property damage: Cybersecurity insurance policies typically do not cover losses resulting from physical injury to personnel or property damage caused by a cyber incident.
- Brand damage: Many cybersecurity insurance policies do not cover losses resulting from damage to the policyholder’s brand or reputation.
- Third-party vendor breaches: Some cybersecurity insurance policies may not cover losses resulting from a breach of a third-party vendor’s systems, even if the policyholder was affected by the breach.
Is cybersecurity insurance worth it?
Whether or not cybersecurity insurance is worth it depends on the specific needs and risks of the organization. Cybersecurity insurance can offer valuable protection against financial losses and liabilities resulting from cyber incidents, which can be significant and can also provide access to resources such as cybersecurity experts and incident response teams.
You can consider the following factors when deciding if cybersecurity insurance is worth it for your organization.
- Risk assessment: Organizations should evaluate the potential risks they face from cyber incidents including the likelihood and potential impact of such incidents, in order to determine if cybersecurity insurance is a necessary investment.
- Cost: The cost of cybersecurity insurance can vary depending on the coverage offered, the size of the organization, and other factors. Organizations should evaluate the cost of cybersecurity insurance against the potential financial impact of a cyber incident to determine if the investment is worthwhile.
- Coverage limitations: Organizations should carefully review and understand the specific coverage and limitations of their cybersecurity insurance policy to ensure that they are adequately protected against the risks they face.
- Cybersecurity practices: Cybersecurity insurance should not be seen as a replacement for effective cybersecurity practices and policies. Organizations should have a comprehensive cybersecurity strategy in place that includes training employees, regularly updating software and systems, and implementing appropriate security measures.
Who needs cybersecurity insurance?
A decade ago, cybersecurity insurance was considered a luxury. It was primarily adopted by industries such as retail, finance, and healthcare that store a large amount of personally identifiable information (PII) and were vulnerable to data breaches.
However, today cybersecurity threats have become more frequent and companies of all sizes across various industries are at risk. According to the Cybersecurity and Infrastructure Security Agency (CISA), malicious actors not only demand ransom in exchange for decryption but also threaten to sell or leak the data if the ransom is not paid. Due to this shift, businesses of all sizes are now considering cybersecurity insurance.
What are the requirements of cybersecurity insurance?
In the early days of cybersecurity insurance, companies used the product to cross-sell, offering expanded coverage at decreased rates to gain market share. As the market for cybersecurity insurance has matured and become more competitive, insurers now require supplemental forms to gain a better understanding of a company’s security posture.
Policies now come with prerequisites, such as multi-factor authentication. Without meeting these requirements, a company might not be eligible for coverage. Insurers often look for minimum security control implementation, a current and tested incident response plan, updated patch management, air-gapped and encrypted backups, and employee awareness and phishing simulations.
How should businesses choose a cybersecurity insurance provider?
When businesses are shopping for a cybersecurity insurance company and policy, many of them choose to work with a broker to navigate the process. If this is the case, it’s essential to hire a broker or agency that specializes in cybersecurity insurance and can help businesses understand their exposure and risk tolerance.
In addition to going for insurers who have been in the field of cyber insurance for a considerable time, businesses should also look for expertise and customer satisfaction ratings, as well as industry ratings.
It’s also crucial to understand what’s included in a policy, including access to knowledgeable claims expertise, forensic providers, breach coaches, data restoration specialists, and risk management services.
Related Article: Gone Are the Days of a Checklist Cybersecurity Approach.
The cybersecurity market is set to grow at a rapid pace and is expected to reach $63.62 billion by 2029. While cyber insurance policy premiums have seen an increase since 2021, they have somewhat stabilized as of the last quarter of 2022. There is a marked increase in cyber insurance adoption and also in the number of insurance claims.
It is important to note that cybersecurity insurance should not be seen as a replacement for effective cybersecurity practices and policies. Rather, it should be used as a supplement to a comprehensive cybersecurity strategy. In fact, the emergence of cybersecurity insurance has incentivized organizations to improve their cybersecurity practices and reduce their risk of cyber-attacks, which can ultimately benefit the overall security of digital systems.
AWA | Cybersecurity Prevention Is the Best Insurance
Prevention and insurance both play important roles in managing cybersecurity risks, and it’s generally recommended to take a multi-layered approach that incorporates both.
Prevention measures such as implementing strong security controls, regularly updating software and hardware, conducting security awareness training, and performing regular vulnerability assessments and penetration testing can help to reduce the likelihood and impact of a cyber attack. By preventing attacks from happening in the first place, organizations can avoid the financial and reputational costs associated with a breach.
However, even with the best prevention measures in place, there is no guarantee that an organization will not experience a cyber attack. In this case, cybersecurity insurance can provide a safety net by helping organizations cover the costs associated with a breach, such as legal fees, notification expenses, and the cost of forensic investigations. Insurance can also provide access to incident response and risk management services that can help organizations recover from an attack and minimize the damage.
Therefore, while prevention is crucial, it’s important to recognize that no security system is foolproof, and cyber attacks can and do happen. In this context, cybersecurity insurance can provide a valuable safety net, helping to mitigate the financial and reputational risks of a breach.
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