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Cyber Insurance is Essential to Your Small Business Risk Management Portfolio


It might feel like cybersecurity risk is only for the big companies. After all, they’re the ones making headlines. But according to the Cybersecurity and Infrastructure Security Agency (CISA), ransomware attacks happen every 14 seconds. And the Small Business Administration reports that 43% of cyberattacks target small businesses.


Commercial auto, property, and liability insurance are the staples of every business risk portfolio. Most business owners wouldn’t consider doing business without them. A hack can be just as devasting as a fire. Yet only 17% of small business owners reported having cyber liability insurance in a recent study by AdvisorSmith.


The cost of restoring corrupted computer files, replenishing lost income due to business interruption, and paying ransom demands is enough to cut into your profits. Add the costs of notifying clients about the breach, paying for credit monitoring, defending yourself against inevitable lawsuits, paying federal and state fines, and remedying your tarnished public reputation, and you’ve got a recipe for bankruptcy.


Reboot your risk management portfolio and discover how cyber insurance can protect your business income and help you recover after a cyberattack.


Even a minor data breach can ruin your business.


If a breach exposes personal data, you could be required to offer free credit monitoring services for one year (or two years if the data is covered by the Health Insurance Portability and Accountability Act). Credit monitoring services can be costly.


For example, if you’re found liable for the breach of 2,000 accounts, the cost to comply with credit monitoring services starts at $240,000. Since cybersecurity and data protection laws exist in nearly every state, credit monitoring isn’t something you can ignore. If you have international clients or vendors, your risk just got riskier. Most countries have cybersecurity legislation, which means more penalties and the added complication of international lawsuits.

Even if you manage to escape a lawsuit, the out-of-pocket cost of credit monitoring services and government fines could devastate your business.


Cyber insurance can cover things like:

  • Customer notification of a data breach (legally required in most states)

  • Reputational damage and public relations (support from experts who understand the process)

  • Legal defense costs (if a client or vendor sues you for exposing their data)

  • Civil damages and settlement awards (as a result of the lawsuit)

  • Damaged computer systems and networks (cost of hiring tech experts)

  • Free credit monitoring for affected customers (legally required in most states)

  • Data restoration (tech assistance to recover compromised data)

  • Cyber extortion and ransom demands (to cover ransoms paid for the code to unlock your data)

  • Ransom negotiations (help from experts who have done it before)

  • State and federal fines and penalties (vary based on the state you’re in)

  • Computer fraud (if a computer is used for information theft, denial-of-service schemes or hacking)

  • Loss of transferred funds (money transferred to an impostor)

  • Loss of revenue and business interruption due to a cyberattack

  • Dependent business interruption system failures (if other networks or vendor networks go down and you lose business because of it)

  • System failures of outsourced providers (if your vendor or partner providers are compromised)

  • Betterments (to replace damaged systems with upgraded systems)


Cyber liability options in detail

Once you understand your options, it’s easier to make informed decisions. Take a deeper dive into the cyber liability pool with the information below.

Cyber liability coverage:

What it’s for:

Forensic investigations

 

Costs related to computer forensic analysis.

Forensics can reconstruct how a data breach occurred, identify the stolen data and assist with restoration. (Data reconstruction might be a separate endorsement, so check with your agent.)

Litigation (defense) expenses

Defense costs related to the data breach.

Check the limits and wording. Legal bills could exhaust your coverage before your claim is completed (unless you've named separate defense limits on the policy). Excess or umbrella insurance could help, too.

Regulatory defense expenses or fines

Expenses associated with state and federal laws.

You might have to defend yourself in civil court and pay fines or penalties for noncompliance with data protection policies (like the Consumer Data Privacy and Security Act).

Cyber event response coaching

Proactive consultation.

Depending on the policy, you might get free, proactive advice from a data response coach (usually a lawyer) on compliance and security to prevent a breach. Check with your agent about this valuable coverage.

Crisis management and reputational damage

Public relations and customer notifications.

You’ll incur costs to notify customers about the breach and provide free credit monitoring services. You'll also have to release statements about how you’re handling the incident and the steps you’re taking to prevent a future breach. You’ll probably need a company to do these things for you. (Some policies have a complimentary service, while others reimburse you.)

Business interruption and losses

Lost business due to a security breach.

If a malignant hacker takes down your website or ordering system, your clients (and vendors) won’t be able to do business with you. Depending on the hack, you could lose weeks of revenue while restoring your systems.

Cyber extortion and ransom demands

Negotiations.

If a nefarious hacker locks you out of your network and encrypts your data, you’ll need help negotiating the demands. (Think about losing the use of your email, client relationship manager, website, e-commerce, proprietary data, ordering systems, fleet tracking, or GPS.)

Betterments

Upgrades after an attack.

A betterments endorsement can help offset the cost of replacing hardware or software after a covered data breach. After the attack, you’ll probably need the upgrades to correct any vulnerabilities. You might even be required to make the upgrades as part of your claim settlement.

Post-breach first party

Helps when your system is breached.

It can cover data restoration, client notification, and forensic analysis (for proof of the attack and how it happened).

Post-breach third party

Helps if your client’s system is breached and they sue you for it.

It can cover legal defense costs or forensic analysis to prove (hopefully!) you weren’t the weak link that caused the breach. It’s an asset to freelancers and businesses working inside their clients’ systems.

Extended reporting period (ERP)

Extends the dates of coverage for reported claims.

An ERP allows you to extend the dates your insurance coverage will respond to a claim. It can be useful if you think you might have a claim reported against you after your policy has ended.

Claims-made basis

Claims are covered only if the claim is reported within the policy dates.

A claims-made policy covers claims reported during the policy period or within the ERP. Check the declarations page of your policy for coverage dates and extensions.

Per-occurrence basis

Claims are covered based on the date of the event.

Per occurrence covers incidents that occur during the active policy dates, even if reported years later. It’s unusual for a cyber policy to be on a per-occurrence basis.

Defense within limits

Legal defense costs and retainer fees are applied to the policy limits and reduce the overall funds available for coverage.

If you have $750,000 in cyber liability coverage and spend $650,000 on legal costs, you’ll only have $100,000 left for future expenses (like settlement fees, credit monitoring, fines or data recovery). Ask about separating defense costs from the rest of your cyber policy or look into commercial umbrella coverage.

The cost of a cyber policy

Cyber liability insurance is priced based on your business risk exposure. Companies that process payment information or store personally identifiable information are at the higher end of the price spectrum. Cyber insurance is highly customized, so you can design coverage to suit your needs and budget. Depending on the deductible and your business risk rating, you could get $1 million in coverage for less than $2,000 per year.


We can help with the moving parts

Cyber liability insurance responds to many interrelated moving parts, and the policies can get just as complicated. That’s where your Insuregy representative comes in. We'll help you insure the gaps by identifying your risk exposures and matching you with the best policy for your risk level. Contact us today. We're happy to explain the details (no tech experience required)!

 

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