Why You Should Consider Cyber Liability Insurance
As cyber-attacks become more frequent and costly, it's important to protect your business and your clients. Having the right insurance can do just that.
In today's economy, almost every business owner uses some form of technology to run their company. While this makes daily operations and transactions easier, it also leaves businesses vulnerable to data breaches, ransomware and other online attacks. In the event of a cyber-attack, some of the most sensitive employee and customer information (i.e., Social Security or credit card numbers) could become compromised. As a result, affected businesses could face disruptions, lost revenue and even lawsuits.
According to a recent survey, more than four in five businesses studied have had at least one data breach already. In particular, small businesses – who usually have fewer resources to combat online threats – are increasingly susceptible to cybercrime.
While no organization can be totally immune, the good news is that the worst-case scenarios can be avoided by being proactive. The latest innovation in the fight against online thieves? Cost-effective cyber liability insurance.
What is cyber liability insurance, and what does it cover?
Cyber liability insurance is designed to protect your business and your clients from the most devastating impacts of online incidents, including data breaches, ransomware attacks and phishing scams. Specific offerings are tailored to meet the needs of your company; however, most agreements typically fall into two categories: first- and third-party coverage.
First-party cyber liability insurance covers losses sustained directly to your business during an attack. For instance, first-party coverage can pick up the cost of an information technology (IT) forensics team hired to investigate a data breach. Likewise, any costs associated with restoring damaged systems, informing affected customers, and legal and data recovery operations are also generally included in this coverage. It can even help with business interruption losses – such as lost income or additional costs incurred as a result of a cyber incident.
On the flip side, third-party cyber liability insurance helps protect your business from claims made by other affected parties. For example, if a client had their information compromised, they may seek legal action against your company. This is where third-party cyber liability insurance can step in and make payments to affected customers, settle expenses or claims, and even pay regulatory fines.
3 tips when considering cyber liability insurance
"In order for cyber coverage to be effective, business owners need to stay ahead of the curve," says Brandon Frantz, licensed agent at Automatic Data Processing Insurance Agency, Inc. (ADPIA) and vice president of sales at ADP®. "Cybercrimes will happen and that's why it's so important to plan ahead and purchase the right insurance before the event even takes place."
Here are a few helpful tips to consider when applying for cyber insurance:
1. Prepare before you purchase. Before shopping for cyber insurance, it's vital to understand your business and its network. How is your organization set up? What are your current security protocols? Have you had a data breach or online incident in the past?
Additionally, speak to your IT management team, as well as any vendors you use to collect and quantify the most accurate data. By the end of the process, you should be able to estimate how much personal information you have about your employees and customers – as it will help your insurer to assess your risk level and offer the best plans.
2. It's never too early to start. Even if your company is brand-new or doesn't have the best security practices in place right now, just beginning the process of purchasing cyber liability insurance can benefit your business in the long run. For instance, an insurer can help you identify your current risk exposures. If you're unsure about price or need, your insurer can work with you to get the best coverage possible now – while leaving the door open to adding more resources later.
3. Involve the right people. Applying for cyber liability insurance can be complicated, so it's critical to have the right people on your team from the start. Assemble your risk-management team, the IT and human resources (HR) departments, and other key personnel. Seek their input throughout the process and use their valuable feedback to create or adapt your cybersecurity plans.
Since cyber liability insurance is relatively new, discussing your individual business needs with a licensed insurance broker, agent, and other professionals will help you get the most out of your cyber insurance plan(s).
What are the Benefits for Your Business?
"Cybersecurity software isn't a substitute for cyber liability insurance," adds Frantz. "Ideally, the two should work together to make your business less of a target for online threats."
Here are a few important benefits of having cyber liability insurance in your toolkit:
1. It covers more than basic business insurance. As a rule of thumb, general liability insurance usually doesn't protect your company from losses related to a data breach. That's why it's critical to supplement your regular business policies with cyber insurance. For small businesses or those concerned about cost, cyber liability coverage can often be added to a Business Owner's Policy (BOP) – which combines property and liability coverage.
2. It protects you against continuously evolving threats. Ransomware-related insurance claims have increased year-to-year and the threat isn't going away anytime soon. Cybercriminals will continue to find ways around even the best new anti-virus software. Preparing your business for these events is vital and will provide you with peace of mind.
3. It safeguards your bottom line. If you choose not to invest in cyber liability insurance, it could cost you immensely down the road. For example, the median monthly cost of cyber liability insurance for a small business is $140 per month, while the average cost of a data breach is over $4 million.
"Investing in cyber liability insurance is a great way to manage your risk and mitigate the most severe costs from an online attack on your business," concludes Frantz. "But remember, not all cyber insurance coverage is the same. Make sure you invest in one that fits your unique business."
To learn more about protecting your employees and your business, check out ADP® affiliate, Automatic Data Processing Insurance Agency, Inc. (ADPIA®), for the latest in cyber insurance offerings.
