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What Is Cyber Insurance?

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By The Boost Team on Apr 7, 2023
5 min read
Icons representing security and finances are superimposed over a person's hands typing on a laptop.

In the digital age, companies rely heavily on technology to conduct their operations and manage sensitive information. However, with this reliance comes the risk of cyberattacks, data breaches, and other online threats that can have serious financial and reputational consequences. That's where cyber insurance comes in. 

In this blog post, we’ll explore what cyber insurance is, what it can cover, and why it has become an essential tool for managing the risks of conducting business in today's digital world.

What is cyber insurance?

Cyber insurance is a type of insurance designed to protect individuals and businesses from internet-based risks, such as data breaches, cyberattacks, and other types of cybercrime. It typically provides coverage for expenses related to the recovery from a cyber attack, including legal fees, public relations expenses, and other costs associated with responding to the attack.

Cyber insurance has become increasingly popular in recent years as the number and severity of cyber-attacks have increased, and more companies have come to rely on digital technology to conduct their business.

What companies should have cyber insurance? 

Cybercrime is rising across the board, and every company should take steps to protect themselves. 2022 had the second-highest number of data compromises in the U.S. in a single year, and the total cost of cybercrime is predicted to hit $8 trillion by the end of 2023, and grow to $10.5 trillion by 2025. For individual businesses affected, the cost can be significant: in 2022, the average cost for a data breach in the U.S. was $9.44M.

According to a Deloitte Center for Controllership poll, 34.5% of polled executives report that their companies were targeted by a cyber attack in the previous 12 months, 22% of those same executives reported that they actually experienced a cyber event, and 12.5% experienced more than one. Those are sobering statistics, but not all companies are taking the initiative to protect themselves against these crimes. According to the same Deloitte Center study, nearly half (48.8%) of C-suite and other executives expect the frequency and severity of cybercrime to continue to rise, but only 20.3% of those polled have cyber insurance. 

It’s recommended that all companies that operate online have some type of cyber insurance. If a company uses its website for business activities, such as storing customer information, making transactions, or communicating with clients, or if it utilizes a cloud storage service to store important data, having cyber insurance is a good safety measure.

How does cyber insurance work? 

The concept of cyber insurance is not very different from any other kind of insurance product. Instead of paying exorbitant costs to recover after a disaster has occurred, a company can buy a cyber insurance policy and pay a regular, predictable premium. Then, if the company suffers a cyber incident, they can make an insurance claim to recover some or all of their losses. This kind of risk management mitigates large, unexpected expenses and helps business owners to rest easier knowing that, in the event of a cyber attack, the company will receive the financial support it needs to recover.  

What kinds of risk does cyber insurance cover? 

Cyber insurance policies can vary widely depending on the provider and the level of coverage needed. They can cover losses resulting from unauthorized access to or theft of data, damage to computer systems or networks, and loss of income due to system downtime or interruption of business operations. They can also cover liability for damages caused to third parties as a result of a cyberattack. Standard cyber insurance policies generally cover things like: 

Breach Response

In the event of a breach, expenses related to investigating the breach, determining the cause of the incident, and notifying those who were impacted can rack up quickly. Not only can cyber insurance alleviate some of that financial hardship, but it can also cover expenses like monitoring the credit of affected customers, paying overtime salaries to employees who dealt with the situation, call center costs, public relations expenses, and other related costs. 

Cyber Extortion

If a business is experiencing cyber extortion, meaning that its website data or capabilities are being held hostage for payment, this coverage might cover the cost of investigating the extortion incident, engaging in negotiations, and paying ransom demands.

Defense, Fines, and Penalties

Whether by regulators or trade groups such as PCI, cyberattacks can sometimes result in fines or other penalties for the affected business. Insurance can cover the cost of defending a company if the breach results in a regulatory proceeding, and also the cost of potential resulting fines or penalties.

Business Interruption and Restoration 

A severe cyberattack can temporarily prevent the business from operating - for example, if the business is unable to access its data or process payments. Business Interruption and Restoration coverage can help to cover the cost of getting the business up and running again after a cyber incident. If a business is interrupted for longer than a certain period of time, this kind of coverage may also pay for revenue lost during that time.

Other coverages, if not included in a standard cyber insurance policy, may be available as endorsements:

Computer Funds Transfer 

Through phishing attacks and similar incidents, cyber criminals can gain access to accounts or credentials that allow them to initiate fraudulent bank transfers and steal businesses’ funds. This coverage reimburses victims for the lost money.

Hardware Replacement

Some cyberattacks can permanently disable computer systems (also called “bricking”). If a business with cyber insurance has their equipment bricked by a cyber incident, the cost of replacement may be covered by their policy.

Post-Breach Remediation

After a significant cyber incident, the business will need to repair and improve their systems to prevent similar attacks from happening again. This can include eliminating vulnerabilities, or making overall improvements to their systems. This work can be expensive, and is sometimes covered by cyber insurance.

Social Engineering

A large number of cyber attacks are enabled by social engineering, in which a scammer tricks someone at the business into sending money or sensitive information. Cyber insurance may reimburse the business for money lost if an employee falls for a scam.

Telecommunications Fraud

If scammers access the business’s telecommunications equipment and use it to run up fraudulent charges on their bill, cyber insurance may cover the amount lost.

Cyberattacks can be devastating for businesses, and the threat continues to grow every year. With the right insurance in place, however, businesses can have peace of mind knowing that even if cybercriminals strike, they’ll have the financial protection they need to get back on their feet.

If you cater to small to medium businesses and want to learn more about how you can grow your revenue by offering cyber insurance, contact us, or dive into building your insurance program with Boost Launchpad.

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