Cyber threats are rapidly becoming common in today's modern, increasingly digital world. Data breaches, ransomware, and hacking attempts are no longer concerns of large corporations but equally hit small businesses and even individuals. These risks have been mitigated through cyber insurance which is a relatively new entrant into the industry but a fast-evolving sector in the insurance industry. However, is cyber insurance indeed a good worth investing in, given the ever-changing nature of cyber threats?
Cyber insurance is a niche insurance used to help businesses mitigate financial risks from cyber-attacks and data breaches. The costs covered under the typical policies tend to include legal fees, notification costs, public relations efforts, as well as expenses incurred in retrieving lost or compromised data. Beyond this, cyber insurance also covers lost revenue due to system downtime and even reputational damage.
However, not every insurance policy for cyber-attacks is alike, and their coverage may differ considerably based on the provider along with the specifics of the policy. The two most common forms of coverage are:
First-Party Coverage: This offers reimbursement for direct costs of a business against a cyber-attack, including data recovery, system repair, and breach notification costs.
Third-Party Coverage: This will cover businesses in case a breach happens on customer data or the possibility of a cyber-attack resulting in third-party claims for damages.
The urgency of cyber insurance has been on a steep rise because the number and severity of cyberattacks have risen manifold within the last few years. Cybersecurity Ventures reports that the global cost of cybercrime will have touched $10.5 trillion annually by 2025.
A cyberattack can be costly to businesses. Reputational damage and loss of trust with the customer will continue to be in a long line of aftermath and may even prove to be more costly. For this reason, cyber insurance proves to be the necessary protection.
Investment in cyber insurance depends on several factors, the size and the nature of the business, the type of data it deals with, and to what extent the company is prepared. Cyber insurance can offer a level of subterranean financial protection but will never replace a proper cybersecurity strategy.
Financial Protection: Cyber insurance can be used to defray the costs associated with responding to an attack, including forensic experts, notice to affected parties, and potential legal ramifications. That might be a lifesaver for small businesses that do not have these resources in-house to respond to an event of this nature.
Reputational Damage Control: A cyber-attack could indeed hurt a business with great public relations costs. Media communication management and consumer trust reconstruction are covered under this insurance policy.
Legal Protection: Most cyberattacks also bring their legal consequences if customer or employee data is hacked. Cyber insurance will cater for legal defense, settlement, and even regulatory fines in case of a breach.
Cost: The premiums for cyber insurance are, in many cases, very pricey. With costs differing substantially based on the size of the business, industry, and level of coverage provided, this is one of the major drawbacks for small businesses with limited budgets.
What is not covered, and what is limited: Many cyber policies do not have coverage to the same degree. Some even exclude types of attacks from those that occur to infrastructure. Others can have very large deductibles, whereby the business absorbs most of the losses on top of the liability transfer.
On the other hand, cyber insurance will be beneficial to any business, but especially to areas which deal with sensitive data which may include health services, financial services, and e-commerce companies. Companies dealing with PII financial records or any form of payment information would benefit from investing in cyber insurance as part of their overall risk management.
Still, small-scale enterprises normally find themselves in the dilemma of how to balance between the cost of insurance coverage and the strength that they can employ to have strong cyber power. These businesses need to establish the level of risk, assess the potential costs of a cyber-attack, and their ability to afford the premiums for the insurance.
In an increasingly digital world, the threat of cyberattacks remains undeniable, and any business, small or large, needs to be ready for it. Cyber insurance is a safety net for the commercial business enterprise, helping it tide over the aftermath of cyberattacks and reduce the repercussions of data breaches, ransomware attacks, and other cyber threats. Being pricey, it can safeguard and protect the business against loss and interruption defend it in court and preserve its reputation if damaged.
But cyber insurance is no magic bullet, and business owners must remember that a strong cybersecurity posture does prevent breaches, including timely updates of all software, training of the employee base, and measures to secure the network.