Cyberattacks and data breaches are growing threats that can cripple small businesses. Is your company prepared? Read on to learn why cyber insurance must be part of every business’ risk management strategy.
As digital transformation accelerates across industries, companies have more to gain than ever before – but also more to lose. Sensitive customer and business data, once the domain of file cabinets and secure rooms, now reside on company servers and employees’ computers ripe for attack.
Each successful breach threatens not only immediate financial loss, but long term reputation damage and legal liabilities. Yet many small business owners fail to realize the extent of risks they now face in our increasingly digital economy.
This article will walk through exactly what cyber insurance is, why cyber threats are escalating, the specific advantages strong cyber insurance delivers to small businesses, what to look for in tailored small business policies, as well as the concrete planning every management team needs to undertake before securing coverage.
Why Cyber Threats Represent An Existential Risk
Cybercrime is growing more pervasive, sophisticated, and damaging year after year. The frequency and impact of cyberattacks on businesses of all types and sizes calls for immediate action, starting with securing cyber insurance coverage.
Consider the following statistics:
- The average cost of a data breach to businesses has risen from $3.92 million in 2006 to over $4.24 million in 2021
- Phishing attacks increased by 11% last year resulting in losses of over $57 million
- 70% of businesses without cyber insurance go out of business within 6 months of a cyber attack
- Cyber insurance policy sales increased by 32% from 2020-2021
From ransomware attacks that lock companies out of their own systems until a bitcoin payment is delivered, to malware infections that slowly syphon and transmit valuable IP outside the network, to distributed denial of service attacks that crash systems and websites by overloading them with fake traffic, the threats are diverse and complex.
However, two troubling categories of cybercrime have emerged as widespread money makers for perpetrators:
Data Breaches
Data breaches occur when cyber criminals infiltrate business networks and access confidential data. Most aim to steal sensitive customer data like names, emails, social security numbers, and credit card information.
With stolen customer data, bad actors can commit identity fraud generating fake credit cards and bank accounts for purchasing high value goods they fence or sell online.
For businesses, data breaches inflict regulatory fines, legal liabilities, and long term reputational harm as customers lose trust.
Ransomware
Ransomware attacks encrypt vital business data denying the company access until they pay a ransom to receive the decryption key. Sophisticated hacking networks like REvil stage tailored infiltrations that leverage company system vulnerabilities and backups to inflict maximum harm.
Attacks often paralyze business activity by locking staff out of crucial databases, software platforms, and shared files. Companies without reliable backups face paying the ransom or losing access and ownership of intellectual property, financial info, customer data and contracts forever.
The commercialization and increasing sophistication of cybercrime has created an economy of scale attackers leverage to extract maximum profits from each successful breach. All indicators point to the trend worsening in years ahead as more business infrastructure comes online without proportional improvements in system security.
Why Cyber Insurance Is An Essential Risk Mitigation Investment
As cyber threats grow in profitability and severity, they pose catastrophic financial risk to businesses unequipped to absorb millions lost directly through theft and fraud, as well as productivity impacts during recovery and remediation.
Cyber insurance fills this response gap via tailored policies equipping businesses to manage crisis scenarios. Key coverages include:
- Direct financial loss associated with cyber theft, fraud or extortion
- Business interruption costs from activity cessation during recovery
- Legal assistance, fines and liability payouts to customers
- Public relations guidance to manage reputation damage
- Forensic investigation into how the attack occurred
- Data recovery assistance
Unlike other types of business insurance, cyber insurance goes beyondcovering bare financial impacts to fund a swift and comprehensive breach response. Quick action can greatly reduce secondary impacts and reestablish business momentum faster.
Key Ways Cyber Insurance Empowers Response
While financial damages pose the most obvious threat, the ancillary impacts of productivity declines, legal liabilities, and reputation damage present equal long term risk.
Cyber insurance enables business owners to respond quickly and comprehensively:
1. Financial Loss Protection From Stolen Funds Or Fraud
Direct cyber theft drains money from company accounts or costs through fraud.
Strong cyber insurance restores stolen or swindled funds up to policy limits. This prevents liquidity crises while getting activity and growth back on track.
2. Legal Assistance And Liability Coverage
Data breaches expose confidential customer data legally requiring timely disclosure and constituency building to retain trust. Cyber insurance policies cover legal assistance guiding compliant breach disclosure, assessing liability, and negotiating fines or settlements.
Instead of struggling to fund legal resources at the worst possible time, your business taps into dedicated experts.
3. Public Relations Support
Data breaches and ransomware attacks often make headlines decreasing customer and partner trust. This hidden cost and reputation tax threaten income long after initial recovery.
PR experts well versed in reputation management ensure your business communicates transparently to retain loyalty. They understand exactly how to neutralize long term revenue risk by framing the cyber attack as an industry problem, not your specific fault, while keeping media updated on response progress.
4. Forensic Investigation Funding
Understanding how attackers infiltrated systems and identifying remaining vulnerabilities proves essential to enhancing security and preventing repeat attacks.
Cyber insurance funds technical forensic teams to methodically uncover attack details missed during triage and identify security gaps for fixing. These critical insights make breached businesses safer long term.
5. Data Recovery Assistance
Ransomware attacks that encrypt data into gibberish essentially hold your business data hostage preventing normal function. Even with the decryption key, restoring operability and confidence requires reliable backups cyber criminals often sabotage along with production systems.
Managed backup services and emergency data recovery capabilities funded through strong cyber insurance equip businesses to rapidly restore data to working condition so activity can resume quickly.
The mix of financial, legal, PR, technical, and data recovery resources cyber insurance unlocks following crises enables businesses to run operations faster despite the attack.
Key Factors Impacting Cyber Insurance Policy Selection
While cyber insurance has become an essential pillar of emergency response preparedness, significant complexity exists across policy offerings. Businesses must carefully evaluate some key factors during provider selection:
Company Size And Risk Profile
Larger enterprises with substantial data assets and infrastructure typically opt for unlimited bespoke coverage given extreme financial downside scenarios. More tailored small business options balance affordability and catastrophe preparedness.
Key risk dimensions like storing customer credit card data, dealing with healthcare records, managing third party vendor systems, or geographic profiles also shift coverage needs.
Breadth Of Threats Covered
Cyber insurance evolved to move beyond pure “hacking insurance” covering network intrusions to now include protection against:
- Fraudulent fund transfers
- Credit card data breaches
- Social engineering attacks
- Rogue employees
- Reputational harm
Clearly enumerating the cyber threats covered proves essential to avoid surprising coverage gaps during crises.
Policy Sub-Limits Provide Flexibility
While cyber insurance coverage was traditionally blanket, more modular policies now enable customization with specific payout sub-limits applying to costs like business interruption, legal fees, customer breach notifications etc. This improved flexibility keeps premiums affordable.
Claims Payment Reputation
As attacks spike, insurer capacity and willingness to pay multiples claims becomes crucial. Smaller providers with weak finances risk going bankrupt from excessive concurrent crises, while insurance giants field volumes smoothly. Checking ratings and online feedback provides warning signs.
Specialized Knowledge Reduces Risk
Partnering with carriers focused purely on cyber insurance with security frameworks exceeding generalist providers improves outcomes. Specialists understand the shifting threat landscape to keep policies current and guide policyholders on reducing vulnerabilities for mutually beneficial risk reduction over time.
Steps To Take Before Purchasing Coverage
Given the complex, ever shifting nature of cyber risk, insurers consider policy applicants closely via underwriting processes assessing several criteria:
1. Conduct Internal Vulnerability Assessments
Knowing where systems and processes fall short of best practices highlights opportunities for improving security and recovering from incidents faster. Common weak points include inadequate employee security training, poor vendor risk management, and incomplete data storage / access governance.
2. Inventory All Digital Assets
Detailing hardware, software, data stores and dependencies provides insurers a comprehensive view of assets requiring protection to tailor commensurate coverage. Keeping this inventory updated ensures policies sync with evolutions as your company modernizes digitally.
3. Implement Baseline Cybersecurity Controls
While 100% breach protection remains impossible, insurers reward policy applicants practicing cybersecurity basics like network firewalls, antivirus software, system encryption, strict password policies with multifactor authentication, and mechanisms detecting unauthorized data extraction. These measures signal policyholders take security seriously and enable lower premiums.
4. Build Incident Response Plans
Effectively responding to cyberattacks while pressured and confused proves difficult without prior planning and testing. Response plans detailing leadership roles, triage procedures, communications protocols, contingency operations and documentation speed coordination when teams need it most. Insurers gain confidence knowing policyholders can minimize damage through prepared reaction.
5. Assess Existing Insurance Coverage
While cyber insurance clearly fills key response gaps, policy overlaps may already cover some costs like fraud, theft or liability requiring adjustment rather than redundant purchases. Checking with brokers to inventory coverage by line clarifies the gaps cyber insurance should fill.
In Conclusion
As cybercrime professionalizes, regulatory fines for data breaches mount, and customer expectations for security transparency rise, dealing with successful attacks has become an inevitability nearly every growing business will face rather than an edge case.
Unfortunately, the financial severity and business complexity of managing incidents stretches resources to the breaking point across owners, management teams and technical staff precisely when clear crisis management proves essential to long term viability and limiting damages.
Cyber insurance delivers an indispensable lifeline following attacks via financial support and access to specialized legal, communications, forensic and data recovery teams. Tailored policies enable appropriate protections specific to company size, industry, data usage and infrastructure vulnerabilities.
However, realizing maximum value from cyber insurance requires advance planning and commitment to security – from keeping asset inventories updated, conducting vulnerability assessments, following baseline best practices, to building playbooks and for incident response workflows. Insurers reward policy applicants able to demonstrate progress on risk reduction.
The modern reality is that cyber attacks present an existential threat to companies unwilling to not only manage incidents professionally when they happen, but also minimize liabilities through continuous advancement of their security posture. Cyber insurance policies covering your specific business bolster crises response capabilities to match intensifying dangers.
But adequate protection depends on selecting policies commensurate to your risk exposure, insurer financial stability, comprehensiveness of threats covered and claims reputation. Investing time across insurance brokers and specialized providers in researching offerings pays dividends when faced with the nightmare of any real world security incident playing out.
