Cyber Insurance for Small Businesses: A Guide
The global average cost of a data breach is $4.35 million. In the United States, that number is $9.44 million.
And 83% of companies will experience a data breach at least once.
The cost of a cyber attack can be devastating for a small business. That's why cyber insurance is so important.
Is your business protected against cybercrime? Keep reading to learn more about cyber insurance and why your small business needs it.
What is Cybercrime?
Put simply, cybercrime is criminal activity that is carried out via computers or online. Cybercriminals target individuals and businesses using computers, computer networks, and other devices that connect to the internet.
The goal is usually to make money by stealing it. Cybercriminals can be individuals or organizations.
Examples of cybercrime include:
- Identify theft
- Business email compromise (BEC)
- Data theft
Businesses should do everything they can to protect themselves from cybercrime. This is especially true for small businesses, which are often more vulnerable due to having fewer resources dedicated to deterring cyber criminals.
Small businesses that have been operating for decades may have a harder time navigating ever-changing technology. This cyber security guide offers helpful tips for protecting your business from online criminals.
What is Cyber Insurance?
Cyber insurance is more formally called cyber-liability insurance. This type of insurance policy protects small businesses from the fallout after a cyberattack or getting hacked.
Cyber insurance cannot prevent a cyber attack. Small businesses still need to have proper cybersecurity measures in place to prevent attacks.
But cyber insurance can help you recover losses that result from a computer or network incident. This includes financial losses from situations like data theft, data breaches, denial of service, hacked systems, and ransomware extortion.
What Does Cyber Insurance Cover?
A cyber insurance policy is usually divided into two categories - first-party and third-party liability coverage. Each coverage type protects small businesses in a different way and covers losses arising from different circumstances.
First-party coverage covers your business's losses and third-party coverage compensates other parties such as business partners and customers.
Let's take a closer look at each of these types of coverage.
First-party cyber insurance coverage protects your small business by helping cover your costs after a cyber attack. Every insurer will offer different coverages and policies.
Your insurance agent will help you choose the best policy for your business to ensure you have the right coverage and limits. But generally, first-party cyber insurance covers the following:
- Lost revenue (business interruption coverage)
- Ransomware attack payments
- The cost of investigating a cyber attack
- Assessing the risk of a future attack
- The cost of notifying customers of the incident
- Fraud prevention services like credit monitoring
Some insurers will also cover the cost of repairing systems that were damaged in the attack.
It's important to work with a good insurance agency that will assess your business needs and help you choose the right policy. Your agent will also work with you to ensure you understand what your policy does and doesn't cover.
The second type of coverage that falls under the cyber insurance umbrella is third-party liability coverage.
You should have a commercial general liability policy as a small business owner. But this policy doesn't cover damages from cybercrime. That's why you need to purchase additional cyber insurance coverage.
Cyber liability coverage protects you from claims made by third parties after a cyber attack. This includes claims and lawsuits made by other businesses and customers whose information is compromised in the attack.
They may come after your business and allege that you did not have proper cyber security in place to prevent the attack and protect their data. Even if you did everything right, accidents can happen that can leave you vulnerable. Your cyber insurance policy will cover legal and attorney fees, settlements, judgments, and regulatory fines.
If you think your customers or business partners wouldn't sue you after a cyber attack, you should think again. They might not have a choice because they have to recoup their losses.
Say, for example, your employee loses their cell phone. If it falls into the wrong hands, cybercriminals will have easy access to sensitive information about your customers.
A cyber attack can prevent your business from finishing projects or fulfilling orders, which can lead to financial losses for your customers. If you can't meet your contractual obligations, you would be liable for these losses.
What Doesn't Cyber Insurance Cover?
It's important to understand what isn't covered by your cyber insurance policy.
Property damage is not usually covered by cyber insurance. If physical property like a hard drive is damaged in a cyber attack, you wouldn't file a claim with this policy. Instead, you would find coverage under your business's property insurance policy.
Intellectual property (IP) claims are also not covered under cyber insurance policies.
Does Your Small Business Need Cyber Insurance?
Every business that uses computers needs cyber insurance. This is because cybercrime doesn't discriminate by business size or industry. In fact, small businesses are often more likely to be targeted for cyber attacks because of perceived vulnerabilities.
Cybercrime can also be particularly devastating for small businesses. The costs of an attack are usually much more impactful for a small company and can even be impossible to overcome.
Criminals expect small businesses to have fewer cyber security measures and target them for attacks. If you think your company won't be hit, you might be wrong.
Cybercriminals don't target specific companies but rather take any possible opportunity to commit their crimes. If your business stores sensitive information on computers, servers, or even in the cloud, you need cyber insurance to protect yourself, your customers, and your employees.
Is Your Business Protected?
Modern business owners are constantly navigating new challenges like cybercrime. Fortunately, cyber insurance policies exist to protect small businesses.
We are here to help you choose the best policy for your business needs and goals. Click here to contact us today to learn more about how cyber insurance can help protect you and your business from a costly attack.