Cyber Insurance: What Is Cyber Insurance & Its Importance for Business
In today’s hyper-connected digital age, organizations rely heavily on digital technology to conduct business. However, as your digital footprint grows, so does the risk of cyberthreats. According to IT Governance, there were 71 publicly disclosed cybersecurity incidents in September 2023, exposing over 3.8 billion data records. Therefore, the importance of safeguarding your digital assets cannot be overstated.
As cyberthreats continue to grow in frequency and complexity, what can your organization do to minimize the risks and improve the chances of surviving a cyberattack or a data breach incident?
Part of the answer to this question is cyber insurance. In this article, we will delve into the importance of cyber insurance, demystify its components, shed light on why it is imperative for businesses in today’s digital age and how your business can meet cyber insurance requirements with Spanning.
What is cyber insurance?
Cyber insurance, also popularly known as cybersecurity insurance or cyber liability insurance, is designed to shield businesses from the financial fallout of cyber incidents. Cyber insurance is a legal contract between the insurer (insurance provider) and the insured (for example, your company). It acts as a vital safety net, offering protection in the event of a cybersecurity incident. Under this contract, certain risks associated with cyberattacks and data breaches are transferred to the insurer.
The primary objective of cyber insurance is to alleviate the financial losses and liabilities stemming from cyber incidents. These incidents encompass a wide range of digital threats, including data breaches, hacking, ransomware, denial-of-service (DoS) attacks and more.
Why is cyber insurance important?
Cyberspace is filled with risks that can cause irreparable damage to businesses large and small. In an environment where a single cyber incident can disrupt business operations, tarnish reputation and result in astronomical financial losses, having a cyber insurance policy can mean the difference between the survival and downfall of your business.
The harsh reality is that cyberthreats will remain as long as your business has an online presence. Therefore, cyber insurance is not merely an option but a critical component of your organization’s risk management strategy.
Cyber insurance policies offer protection against a spectrum of threats, covering costs for investigating and recovering from a breach, legal fees, regulatory fines, and even expenses related to crisis management and post-incident public relations. In essence, cyber insurance improves the odds of your business surviving a cyberattack or a data breach.
Who needs cyber insurance?
For cybercriminals, the size of a company doesn’t matter. Any organization that relies on digital technologies to create, gather and store information online should consider cyber insurance. Here’s a breakdown of who can benefit from cyber insurance:
Businesses of all sizes — from small startups to large enterprises — any organization that conducts business online, handles sensitive customer data, or relies on digital operations should consider cyber insurance.
Healthcare organizations handle vast amounts of sensitive patient data. According to the 2023 Mid-Year Horizon Report, cyberattacks targeting healthcare organizations increased by a whopping 104% (327 data breaches) as of mid-2023 compared to 160 breaches in the first half of 2022. Therefore, cyber insurance is crucial for healthcare providers to safeguard patient information and comply with regulations like the Health Insurance Portability and Accountability Act (HIPAA).
Banks and other financial institutions gather and store customers’ personal information, such as social security number, date of birth and phone number, making them a hot target for cyberattacks. Cyber insurance helps protect against financial losses and reputational damage due to cyber incidents.
According to BlackBerry Cybersecurity’s second quarterly Global Threat Intelligence Report, cyberattacks on government agencies and public sector services increased by nearly 40% in Q2 2023 compared to Q1. Government organizations handle sensitive and classified information, making them an attractive target for threat actors. Cyber insurance can help government agencies cover some losses resulting from cyberattacks.
Cyberattacks on educational establishments are nothing new. In fact, education is one of the most targeted sectors for cyberthreats because cybercriminals know they often lack the necessary cybersecurity infrastructure and skills to defend themselves. Cyber insurance can help schools, colleges and universities recover from cybertheft and ransomware attacks.
Retail businesses process a significant amount of customer data through online transactions. Cyber insurance is essential to protect customer information and ensure business continuity.
Does general liability cover cybersecurity?
No, general liability insurance does not cover cybersecurity. Businesses need general liability insurance as it provides coverage for claims that can arise due to bodily injuries and property damage resulting from their products, services or operations.
General liability insurance policies help businesses protect themselves from costly legal and medical expenses, theft, negligence and other injury-related issues. However, they do not cover cyber-risks. Therefore, your business needs a separate cyber insurance policy to address cybersecurity risks adequately.
What does cyber insurance cover?
Depending on your premium and type of policy, it may cover:
If your business suffers a data breach incident, your cyber insurance policy can help cover some of the costs associated with notifying impacted customers and stakeholders, investigating the breach and providing credit monitoring services.
If cybercriminals demand a ransom to restore your system or prevent the release of sensitive data, cyber insurance can help cover these ransom demands.
Cyber insurance can compensate for lost income and extra expenses incurred during a cyber incident, helping your business minimize the negative impacts of downtime.
Cyber incidents can potentially lead to high legal expenses. This is where cyber insurance can be helpful, as it covers the costs of hiring lawyers and defending against lawsuits.
Rebuilding trust and reputation after a cyber incident is crucial. Cyber insurance often includes coverage for public relations services and crisis management.
What does cyber insurance not cover?
While cyber insurance can provide comprehensive coverage for digital threats, it may not cover all types of cyber incidents. Cyber insurance policies typically exclude coverage for the following:
Acts of war
Cyber insurance policies may exclude coverage for cyber incidents resulting from acts of war or terrorism — for example, nation-state attacks.
Your cyber insurance policy may exclude coverage for cyber incidents resulting from intentional acts, such as fraud or theft by an employee or an insider.
Poor cybersecurity practices
It is important to remember that cyber insurance does not replace good cybersecurity practices. Your insurers may deny claims if your organization’s security measures were inadequate, or the incident resulted due to negligence.
Cyber insurance policies may not cover incidents that exploit vulnerabilities known to the policyholder before obtaining the insurance.
Intellectual property theft
Most policies do not cover intellectual property theft since it often falls under intellectual property rights insurance.
How does cyber insurance work?
Cyber insurance operates like other insurance policies but focuses on digital risks. Let’s take a closer look at how it typically works:
Policy purchase: An organization selects a cyber insurance policy that aligns with its business needs.
Premium payment: The policyholder pays the insurer a monthly or annual premium. The premium amount depends on factors such as the level of coverage, the organization’s size and the industry it operates in.
Policy activation: If a cyber incident occurs during the policy’s coverage period, the policyholder contacts the insurer to initiate a claim.
Claim assessment: The insurer assesses the claim to determine its validity and the coverage applicable to the incident.
Coverage disbursement: If the claim is approved, the insurer disburses funds to cover the costs associated with the cyber incident.
First-party cyber insurance
First-party cyber insurance protects your business when a cybersecurity incident occurs on your company’s network or systems. It covers the costs of responding to a cyber event, such as investigating the incident, notifying affected parties, repairing damaged systems and restoring lost data. It can also cover the costs of lost income due to a cyber incident.
Third-party cyber insurance
Third-party cyber insurance covers the costs associated with legal liabilities resulting from a cyber incident on a third party’s (clients, vendors or stakeholders) network or systems. It can cover lawsuits, settlements and judgments against your business due to a cyber incident if you are found liable.
Types of cyber insurance
Cyber insurance coverage can vary from one policy to another and from one insurer to another, but they generally fall into the following categories:
Network security coverage
Network security coverage focuses on protecting an organization’s digital assets from cyber-risks due to network security failure. This includes coverage for costs related to data breaches, malware infection, ransomware, business email compromise and other malicious activities. It covers costs related to forensic investigations, legal expenses, credit monitoring and data restoration.
Network business interruption coverage
Modern businesses depend on technology to operate. If an organization’s network or the service provider’s network they rely on goes down due to human error, unpatched software or a security failure, it could halt business operations. Network business interruption coverage is designed to address the financial impact of a cyber incident that disrupts normal business operations. It can cover lost income, extra expenses incurred during downtime, and even the costs of relocating operations to minimize disruption.
Errors and omissions (E&O) coverage
This aspect of cyber insurance is designed to address claims made against a business for errors, omissions or negligence in the professional services offered by their company. It helps cover legal defense costs and compensation to a third party(ies). In the context of cyber insurance, this can include protection against claims related to inadequate cybersecurity measures.
Privacy liability coverage
Privacy liability coverage is crucial for organizations that handle sensitive customer data. It covers costs associated with data breaches resulting in violation of privacy laws. It also covers expenses related to legal penalties, notifying affected parties, providing credit monitoring services and legal defense against claims.
Media liability coverage
Media liability coverage is relevant for businesses that create and publish content online, such as publishers and broadcasters. It can protect against claims of defamation, libel or copyright infringement from online content, including advertisements and social media posts.
What is required for cyber insurance?
Cyber-risks are ever-present in the online world. With cyberattacks increasing in number and sophistication, the demand for cyber insurance is also increasing. As a result, getting cyber insurance is becoming increasingly cumbersome and time-consuming. As per Delinea’s 2023 State of Cyber Insurance report, the number of companies that took six months or more to obtain a cyber insurance policy is increasing year-over-year. In the survey, about 70% of respondents said their insurance rates increased by a staggering 50-100% upon application or renewal.
Cyber insurance can help cover financial losses from cyber-risks. However, you must ensure proper cybersecurity infrastructure and processes are in place to qualify. When seeking cyber insurance coverage, you must be aware of the following requirements and considerations:
Before purchasing a cyber insurance policy, your business must undergo a thorough risk assessment. This process involves identifying and evaluating potential cyber-risks and vulnerabilities within the organization. Insurers typically require this assessment to understand your company’s risk profile and determine the level of coverage and premium costs.
Compliance with security standards
Your business must demonstrate compliance with cybersecurity standards and best practices to qualify for cyber insurance. Adhering to industry-specific regulations and implementing cybersecurity measures such as firewalls, encryption, and endpoint detection and response (EDR) can be prerequisites for cyber liability coverage.
Incident response plan
Insurance providers may require businesses to have a well-defined incident response plan. This plan should outline the steps to be taken during a cyber incident. Insurers view businesses that can demonstrate a proactive approach to incident response more favorably. Therefore, your organization’s incident response plan must include the steps to identify, contain, eliminate and recover from a cyberattack or a breach.
Human error is one of the common causes of cyber incidents, which is why regular employee training in cybersecurity best practices is critical to mitigate cyberthreats. Many insurance providers will look for evidence of ongoing employee training as a condition for coverage.
Data protection measures
Cyber insurance policies often require businesses to implement strong data protection methods and technologies, such as encryption, access controls, multifactor authentication and regular data backups. These measures not only enhance security but also demonstrate your organization’s commitment to protecting sensitive information.
Regular security audits
Frequent security audits and assessments help identify and eliminate potential vulnerabilities in your IT environment. Insurance providers may require businesses to conduct these assessments and remediate identified issues to maintain coverage. Regular audits also demonstrate your commitment to staying updated with evolving digital threats.
Legal and regulatory compliance
Compliance with relevant industry laws and regulations is vital to securing cyber insurance. Failing to do so may result in coverage denials or reduced payouts in the event of a cyber incident.
What are the benefits of cyber insurance?
Cyber insurance offers several benefits to businesses that extend beyond just financial cover. Some key non-financial benefits of having a cyber insurance policy are listed below.
Cyberattacks and data breaches can severely damage an organization’s image and reputation. Cyber insurance policies often include public relations and reputation management services provisions, which can help mitigate the damage and rebuild trust with customers and partners.
Compliance with legal requirements
In some industries, having cyber insurance is a legal requirement. It helps organizations comply with regulations and avoid potential legal consequences.
Cyber incidents can disrupt critical business operations, causing downtime and revenue loss. Cyber insurance can include coverage for business interruption, allowing organizations to continue operations during recovery.
A cyber insurance policy not only helps to recover from financial losses after a cyber event but also to manage the situation effectively. A cyber insurance provider may provide access to cybersecurity experts and other resources to respond quickly, investigate the incident and contain the damage.
Cyber insurance policies also include legal support and access to lawyers to help understand necessary regulatory obligations and legal proceedings. They can also help develop strategies to respond to lawsuits and legal challenges.
Cyber insurance policies often include training programs for employees to understand cybersecurity risks better. The training programs educate employees to maintain cyber hygiene, how to identify social engineering attacks and how to avoid them.
Meet cyber insurance requirements with Spanning
Although cyber insurance can help your business recover from financial losses due to cyber events, it isn’t a substitute for data backup and recovery. It cannot help you recover lost or stolen data if it isn’t backed up. Spanning Backup delivers complete backup and recovery for Microsoft 365, Google Workspace and Salesforce environments.
Spanning SaaS backup solutions come with advanced technologies, such as phishing defense, integrated dark web credentials exposure monitoring, and backup and recovery. Our powerful data protection capabilities help businesses like yours strengthen cybersecurity and business continuity programs and prove you have the necessary processes in place to qualify for cyber insurance.
Spanning Backup employs multiple layers of security to ensure your data is safely backed up and recovery-ready, should the need arise. Our robust defenses include but are not limited to the following:
Our solutions include Transport Layer Security (TLS) and 256-bit encryption to protect data in-flight and at-rest.
SOC 2 compliance
Spanning is SOC 2 Type II certified, a rigorous evaluation of repeatable internal operational and technical controls, information technology processes and trust services principles.
Spanning uses the OAuth 2.0 protocol (no generic service accounts or passwords required) to access SaaS systems rather than less secure service accounts and passwords.
Encryption key management
Spanning supports Bring Your Own Key (BYOK), aka customer-managed encryption keys, enabling customers to generate and supply their own encryption keys for securing SaaS and cloud data.
Our systems constantly guard against intrusion with log analysis, file integrity checking, policy monitoring, rootkit detection, real-time alerting and active response.
Spanning’s service is hosted on HIPAA-compliant data centers.
Discover how Spanning helps you meet cyber insurance requirements by strengthening your SaaS data protection strategy. Learn more about Spanning backup today.