Smart IT teams and managed service providers know that they should back up data in order to restore systems to a secure state quickly following a successful cyberattack. But sometimes, backups alone aren’t enough to prevent major damage. There could still be steep financial fallout from a cyberattack, due to loss of revenue, damage to reputation, or legal claims.
Cybersecurity insurance helps to protect against these risks. By providing compensation to businesses that suffer attacks, cyber insurance reduces the financial impact of breaches and protects the health of the business.
Keep reading for an overview of how cybersecurity insurance works and how to get the most value out of it.
What Is Cybersecurity Insurance?
Cybersecurity insurance, or “cyber insurance” for short, is a special type of insurance that financially compensates businesses in the event that they are harmed by cyberattacks. The purpose of cyber insurance is to protect businesses against severe financial fallout due to cyberattacks.
As with any other type of insurance, cyber insurance requires businesses to pay premiums for coverage. They then receive payouts from the insurance provider if a type of security incident that is covered under their plan takes place.
It’s important to note that not all types of security incidents are covered under all cyber insurance plans. Typically, your plan specifies certain types of risks and events that are covered, and you’ll receive compensation only if you suffer those kinds of attacks. Many policies also require businesses to take certain steps to secure their systems or data. Failure to follow those steps will generally result in an insurer denying your cybersecurity insurance claim.
Cyber insurance has been around since the 1990s. But it has become an increasingly important resource in recent years, given the ever-rising frequency of cyberattacks. Today, almost all reputable insurance providers offer some kind of cyber insurance policy that businesses can buy.
Further reading Importance of Cyber Liability Insurance Explained
Most Common Cyber Insurance Offerings
As examples of how cyber insurance can be used, consider this list of top ten insurance claims involving cybersecurity in recent years:
- Human error: An employee making a mistake – even an innocent one, like accidentally storing sensitive data without proper protections – can still be costly for a business.
- Ransomware: This could also be qualified as human error, as an employee accidentally clicks on a malicious link in an email, inadvertently downloading ransomware software into the business network, followed by ransomware requests from the malicious actors. Alternatively, the ransomware could be planted by malicious users.
- Phishing: This type of attack also involves users clicking ill-intentioned links (or responding to other kinds of malicious requests).
- Distributed denial of service attack: Known as a DDoS attack for short, this is an attack that generally involves deliberately overloading a network, causing a business’s website to go down.
- Unauthorized access: This can occur from a variety of directions. For example, a hacker could gain access to the network through a loophole in its security.
- Malware and viruses: When malware or viruses enter the computer network, they quickly begin disrupting everything. They can cause screens to freeze and machines to become unresponsive, or even to shut down altogether. With new viruses being developed every day, even the strongest anti-virus software must be regularly updated.
- Data breaches: Data breaches can occur in a number of different ways – some malicious, some accidental. For example, an email containing confidential customer financial information could be sent to the wrong recipient.
- Impersonation: In the right circumstances, it could be very easy for one person to impersonate another digitally. This risk is especially high given new technologies like deepfakes, which can be used to drive social engineering attacks that trick employees into believing that a malicious user is legitimate (for example, their boss) by impersonating a legitimate user.
- Rogue employees: Employees can turn malicious for a number of different reasons, whether it’s a desire for revenge as a result of perceived wrongs at the hands of the company, or wanting to ingratiate themselves with a competitor by providing classified information. However it occurs, it can be devastating, depending on the rogue employee’s level of access to the system.
- Misleading communications: It can be surprisingly easy for a business to be duped into sending money for goods or services to someone claiming to be genuine.
Although we have outlined the most common insurance claims that are covered by the majority of insurance providers, there are also one-of-a-kind, custom policies that are offered by only a few companies.
Here are some examples of niche cyber insurance products:
- Cloud downtime insurance: This policy covers clients for short-term cloud outages, network crashes, and platform failures that last up to 12-24 hours. It’s designed to address a vital business-interruption protection gap via parametric triggers that pay compensation based on hours of downtime.
- Miscellaneous professional liability coverage: This is a policy designed to protect professional services in the event of errors or omissions. Companies that perform professional services for others can make mistakes – overlook a critical piece of information or misstate a fact, for instance – and this coverage would protect them in the event that such oversights lead to cyberattacks.
- Cyber insurance forensic work policy: Such a policy may be used in order to meet some of the costs of a forensic investigation. The insurance will pay for whatever technical and legal services are required in order to meet the standards of a court that handles claims related to cybersecurity attacks.
Ways to Manage Cyber Insurance Cost
Whether or not to buy cyber insurance is a personal choice for every business owner. And if you do decide that additional coverage wouldn’t hurt, there are several options that will lower the insurance cost.
One is to sign your company up for security awareness training. These types of services are offered by cybersecurity experts and enable smaller businesses to effectively protect their technology and people. If you can demonstrate that you’ve taken this precaution to reduce the risk of attack, your insurer may offer a lower rate for cybersecurity coverage.
Along similar lines, you can conduct in-house phishing tests by performing simulation tests on your clients quarterly or monthly. You should also increase the difficulty of these exercises over time. This is another way of reducing your risk in order to qualify for lower-cost cyber insurance.
You should always have backups in place to help mitigate the risk of cyberattacks. But sometimes, backups aren’t enough to prevent the major financial harm that could result from a cyberattack due to problems like business downtime or legal claims. That’s why it’s worth considering cyber insurance as an additional layer of protection for your business in the face of cyberattacks.