What Is Cyber Insurance And Why Should You Have It?

Businesses of all sizes and types these days must maintain an online presence to be competitive in today’s marketplace. And yet, there are unique risks that come with doing business online – such as data breaches, liability to customers whose data was compromised, damage to business software systems, and more.

How do you protect your business from these kinds of distinct online risks? Simply having a commercial general liability insurance policy may not be enough. Cyber insurance can fill in the gaps left by other types of business insurance and help equalize the playing field with larger competitors.

Here are the basics of what cyber insurance is and how it can benefit you and your business.

What Exactly Is Cyber Insurance?

Cyber insurance is a specially designed insurance product that focuses on shielding businesses against risks that arise from doing business online. 

Some of the costs coverable by many cyber insurance policies include:

• Legal fees connected with data breaches and other online events.
• The cost involved in notification of each customer potentially affected by data breaches.
• Costs involved in taking steps to restore confidentiality to customers’ personal information stored in your systems.
• The expense of recovery of lost, damaged or compromised data.
• The expense of repairing software and/or other elements of your business’ computer system affected by cyber attacks.
• Business interruption costs.
• The cost of investigating the cause of the cyber event – “cyber forensics.”

While cyber insurance is a relatively new concept, it is certainly appropriate in our “Information Age.” It has been offered by various groups for well over a decade now, and the cyber insurance market is growing rapidly.

There are two basic categories of cyber insurance, though many policies incorporate both. First, there is first party cyber insurance, which simply covers the company’s or individual policy holder’s direct losses. Also, there is third party cyber insurance, which expands coverage to legal fees and liabilities incurred by others – usually a customer or a business partner.

There is no uniformity in the exact form that cyber insurance takes. It varies from insurer to insurer quite a bit, and you can customize your policy as well. In general, this type of insurance is centered on data breaches and identity theft. 

Why Is Cyber Insurance So Important?

The basic reason why many of today’s businesses find it worthwhile to invest in cyber insurance is simple – the financial impact of cyber crimes is growing, even as this type of crime is becoming far more common. Businesses are routinely targeted by high-tech cyber criminals, and despite one’s best efforts to stymie hackers, occasionally, one may break in.

But why are data breaches so expensive to companies? There are several reasons:

1. Fines may apply and be owed on the local, state, or federal level.
2. Cyber crime generates court cases in its aftermath, which involves court fees, paying lawyers, and other legal expenses.
3. Liability for compromising customer personal information like SSNs, debit and/or credit card numbers, bank account numbers, and more is very high. This is especially true if thousands of people have been affected.
4. State laws typically require businesses to notify all customers who may have been impacted by a data breach. This can cost a lot more than one might think.
5. Your customers will expect free credit monitoring post-data breach. You can’t afford to be the one company that’s not providing this sometimes costly service to its customers who may be worried about how their credit scores may be affected.
6. Viral attacks often coincide with data breaches, and that means you have to repair your software. Plus, you may need to upgrade computer systems and cybersecurity software after an event to help prevent another one and to regain your clientele’s confidence.

The majority of small businesses will suffer from a significant data breach at some point. And even a single such event can be costly enough to sink a small business. This is a threat well worth taking proactive steps to protect yourself against.

But Doesn’t General Liability Insurance Cover It All Anyway?

The fact is, commercial general liability policies usually exclude the very sort of things that cyber insurance covers. The two insurance types, thus, are complementary rather than redundant.

General liability insurance will cover you against advertising errors, reputational harm, accidentally damaging rented property, and bodily injury or property damage to a third party (not the company or its employees.) Professional liability insurance, also called errors and omissions insurance, adds coverage for certain types of negligence claims and mistakes. But neither of these fully cover you against most online threats the way cyber insurance can.

To learn more about cyber insurance and how it can fit into an overall business insurance plan, contact experienced cyber insurance agents at Flagler Financial in Central Florida today for a free, no-obligation consultation.