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Cyber Insurance: Why You Need It And What To Look For In A Policy

By July 31, 2024No Comments

Business owners who utilize technology within their company (and let’s be honest, who doesn’t nowadays?) are facing cyber threats at an unprecedented rate. For example, the number of recorded data compromises in the United States stood at a whopping 3,205 cases in 2023. Not only that but the average cost of a data breach for businesses was more than double the global average ($4.45 million), sitting at $9.44 million. So, what can businesses do to protect themselves? In addition to having the right security procedures and redundancies in place, one thing businesses must consider is cyber insurance. That’s why our experts at Nesbit Agencies have put together everything you should know about cyber insurance, including what it is, why you need it, and what to look for in a policy.

Understanding Cyber Insurance

The first thing you’re probably wondering is, “What exactly is cyber insurance?” Cyber insurance is a specialized insurance product designed to protect businesses against the financial losses and liabilities arising from cyber incidents and data breaches. In general, cyber insurance will cover financial costs incurred from a data breach, revenue losses due to business interruptions, losses resulting from payments to bad actors in business email compromise (BEC) and phishing attacks, as well as ransomware and extortion payments. So, although cyber insurance doesn’t entirely protect companies from every financial impact or liability that may arise from a cybersecurity incident, it can provide crucial support in helping businesses manage and mitigate the fallout.

Importance Oof Cyber Insurance

Many people believe that their general business liability policies are enough when it comes to protecting their business. However, these traditional policies often focus on physical damage or bodily injury, not the intangible and often extensive damages caused by cyberattacks. With general business liability policies typically excluding cyber threats, it’s obvious why businesses need cyber insurance in today’s increasingly digital (and unfortunately, malicious) world.

Consider this: If you were to become a victim of cybercrime such as ransomware or phishing, what would you do? Would you have the financial resources to cover the ransom or losses from a business interruption? How would you handle the legal and regulatory fallout if sensitive data were stolen? Do you have a plan in place to restore lost data and secure your systems against future attacks? And are you prepared to manage the public relations crisis and protect your company’s reputation?

This is where cyber insurance becomes crucial. It provides protection against substantial financial losses by covering significant expenses associated with data breaches, including legal fees, regulatory fines, and costs for public relations efforts to manage reputational damage. It also addresses technical costs such as the recovery or restoration of lost data, system repairs, and the implementation of enhanced security measures post-incident. Cyber insurance is also vital for ensuring business continuity. By covering losses due to business interruptions, it helps companies maintain operations and revenue streams during recovery periods. Additionally, many policies include provisions for business continuity planning and crisis management, ensuring companies are better prepared for future incidents.

In terms of legal and regulatory compliance, cyber insurance often covers the costs of adhering to data breach notification laws and regulations, which can be complex and vary by jurisdiction. It also provides financial support for legal counsel and representation if a company faces litigation from affected parties or regulatory bodies. This comprehensive coverage highlights the importance of cyber insurance in safeguarding a business’s financial stability and reputation when recovering from a cybersecurity incident.

Finding The Right Cyber Insurance Policy

Now that you understand what cyber insurance is and why it’s important, let’s talk about what you need to look for in a policy. When selecting a cyber insurance policy, it’s crucial to consider several key features that can offer comprehensive protection. For example, first-party coverage is essential as it addresses direct losses to the business, such as data breaches and business interruptions. But third-party coverage is also important, as it covers damages claimed by external parties affected by a cyber incident, which is especially relevant for companies handling sensitive customer data. Then, for tech-related businesses, Tech Errors & Omissions (E&O) coverage provides protection against lawsuits stemming from service or product failures.

Beyond this, specific coverage areas to look for in your policy include business interruption, which helps sustain operations and revenue during recovery, and data breach response and reporting, which covers costs related to managing and communicating the breach. Digital assets restoration is another critical area, ensuring that lost or damaged data can be recovered. Additionally, policies should address cyber extortion and ransomware payments, brand damage repair, and potential regulatory fines.

Evaluating your risk profile is also an essential step in choosing the right policy. This involves assessing your company’s vulnerabilities based on the type of business and the sensitivity of the data being handled, as well as the effectiveness of existing cybersecurity measures, which can influence insurance eligibility and premiums. In many cases, documentation of your cybersecurity measures—such as audits, penetration tests, and compliance certifications—will be required by insurers to secure a policy.

If at this point, you’re feeling a bit overwhelmed—don’t worry. Our team at Nesbit Agencies is here to guide you through the complexities of policy options and insurer differences, providing a detailed examination of your coverage to make sure you fully understand the policy’s scope, limits, and any common exclusions.

Final Thoughts

As cyber threats continue to be increasingly sophisticated and prevalent, safeguarding your business with the right cyber insurance is no longer optional—it’s essential. Protecting against the financial and operational impacts of cyber incidents ensures that your business can recover and continue thriving in the face of adversity. By understanding what cyber insurance covers, identifying key features in a policy, and evaluating your risk profile, you can make informed decisions to secure the right protection. And remember, our experts at Nesbit Agencies are always here to help you navigate this crucial aspect of business security. With our support, you can approach your cyber insurance strategy confidently, knowing that you’re well-prepared to handle the ever-evolving challenges of the digital age.

For more information or to speak with a team member, visit NesbitAgencies.com.