A Review of the Pros & Cons of Cyber Insurance 

It will come as no surprise to anyone who uses technology for work or personal tasks, that cyber attacks and cybercrimes, in general, are on the rise. It seems like phishing scams, ransomware, and hacking instances make the news on a daily basis making many of us desensitized to the threats that are increasing year after year. Our dependence on the digital world isn’t going away anytime soon. That raises the question of what steps businesses can take to safeguard our business data or at the very least have a level of protection should a cyber incident occur.  In recent months, we have examined the basics of cyber insurance or cyber liability in reference to ransomware attacks, but this month we will be taking a closer look at the benefits and a few potential downsides of this type of insurance. 

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What Is Cyber Insurance? 

Cyber insurance or cyber liability is a form of insurance that helps businesses respond and recover from a malicious or accidental cyber incident. This form of insurance policy could decrease the financial ramifications of a cyber incident not only if a payout is required to recover data but also to regain a reputation that may be damaged in light of a well-publicized cyber attack.  The ultimate goal of having cyber liability is to assist in getting back on track or even back on your feet after a cyber attack has occurred, similar to how car insurance helps after an accident has happened. 

Who Could Use Cyber Insurance? 

Any business that has cyber exposure could use some level of cyber insurance. This includes organizations that conduct business over the Internet, use e-commerce, or store electronic data online, and most especially any organization that stores and uses sensitive personal information online.  In short, any business that uses technology could use cyber liability insurance. For instance, industries that could use this type of protection include retail stores and small businesses that use e-commerce to sell their products or services, companies that collect payment or payroll information online, healthcare providers that store sensitive patient data online, and/or businesses that transfer money electronically.  If you think your business is too small or not a target of cybercriminals, think again. Businesses large and small should consider the pros and cons of having or bypassing cyber insurance. Regardless of the size or industry of your business, cyber attacks happen at an alarming rate. In fact, many cyber experts believe that small businesses are at a higher risk of a cyber attack because they have less security than larger more established businesses. 

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Pros of Cyber Liability Coverage

Given that most businesses should consider investing in cyber insurance, let’s review the beneficial aspects of this protection for your organization. 

Safeguard Against Financial Loss

One of the more important benefits of having cyber liability is the protection against financial losses that could occur due to a cyber attack. There are numerous costs associated with cyber incidents that could be damaging and wide-ranging depending on the scope and type of attack.  Typically, these include costs such as loss from operational disruption or downtime, recovery expenses, remediation expenses, notification costs, legal fees, costs of hiring an expert team to solve the crisis, fines due to lack of regulatory compliance, and/ or a ransom payment associated with ransomware attacks. 

Legal Protection 

Protecting your organization after a cyber incident is paramount and may need the counsel of specialized attorneys. This can be costly and hurt the bottom line of many businesses. Cyber insurance can protect your company from that costly expense.  Cyber liability insurance can help cover the expenses associated with legal defense, settlements, or judgments against your business. 

Reputation Management Mitigation

In the wake of a cyber attack, many businesses find that the biggest hit they have to handle is reputation management. In other words, your company may need to reassure the public that it is safe to do business with your organization and that their private information or data will be robustly protected. 

Regulatory and Compliance Mitigation 

Many industries require compliance with the law to store and transfer information, such as the HIPAA compliance needed by healthcare organizations. Cyber insurance can help your business stay compliant with industry standards and regulations by helping ensure that you're meeting those requirements. 

Specialized Expertise 

In many cases where a cyber incident has occurred, expert forensics teams or IT teams are needed to solve the problem, recover data and shore up security. This can be costly. Cyber insurance can help with access and payment for specialists in the aftermath of an incident.

Cons of Cyber Liability Coverage

Cyber insurance may be a level of financial protection that many businesses find beneficial regardless of their size or field. However, some negative aspects of cyber liability should be reviewed before making your final decision. 

The Cost 

Cyber insurance can be costly, so it is worth taking your time examining what it covers and what it will cost you as well as what your risks include. Analysis will be needed to determine what the cost could be to your business should the technology of your company go down.  What will it cost to recover and restore reputation as well as what type of lawsuits could you potentially face? These aspects should be weighed before purchasing liability insurance. A careful analysis should look at the level of coverage your organization may need as compared to your overall budget. 

Coverage Exclusions and Limitations 

Just like any insurance policy, it only covers certain circumstances. There may be limits to the amount or type of coverage you can access at any one given time. For instance, some policies do not cover certain types of incidences while others only cover a percentage of the overall cost. Be sure to know what your policy would exclude and where the limitations are in the fine print. 

False Sense of Security 

There are IT specialists who worry that cyber insurance may give companies a false sense of security when it comes to cyber attacks. Yes, you may have spent a considerable amount of money to cover the incident after the attack has occurred but what if you spend that money on expanded security systems instead?  Cyber insurance should not be a substitution for a robust and comprehensive security practice.

Takeaways of Cyber Insurance

As with most types of insurance, deciding on what is right for your business including the amount and type of coverage should be reviewed by not only your leadership team and financial officers but also your IT team who are on the front lines of dealing with cyber attacks. If you have questions regarding the level and type of cyber insurance your business may need, talk to our team at Spectra Networks