Business risks are increasing due to the rise in cyber attacks. In 2021, the cost of data breaches rose from $3.86 million to $4.24 million. While it is essential to create a strong cybersecurity culture, it is also critical to arrange cyber liability coverage for your company. Let's explore cybersecurity insurance and the coverage associated with this type of policy.
What is Cyber Insurance?
Cybersecurity insurance (also known as cyber liability) is a contract that the policyholder purchases to help reduce the financial risks of doing business online.
For a monthly or quarterly fee, the policyholder can transfer its online business risks to the insurer. Cyber insurance is an emerging product and purchasing it puts your company among the early adopters.
Cybersecurity policies are subject to change from month to month. These fluctuations all depend on the dynamic nature of current cybersecurity risks. To calculate insurance policy coverages and the associated rates and premiums, cybersecurity insurance underwriters must formulate risk models based on limited data. These are a few key factors insurance companies will consider:
The Origins of Cyber Insurance
Cyber insurance originated from errors and omissions (E&O) insurance. This form of liability coverage safeguards against faults and defects in services offered by a company. This policy is also similar to product liability policies for physical and digital goods.
Although some cybersecurity insurance policies make provisions for E&O, it is often sold as a separate policy. Tech E&O policies are also available as riders (add-ons to cyber insurance policies).
What's Included in Cyber Liability Coverage?
If a company's IT assets are damaged or stolen while under a cyber liability policy, coverage kicks in for costs associated with recovering or replacing those assets. The policy will typically cover:
- Paying extortion demands arising from a ransomware attack
- Notifying clients or customers when a data breach occurs
- Credit and fraud monitoring for affected customers for several years
- Paying IT forensic expenses to explore how and why the security breach occurred
- Data recovery costs to restore customers’ personal identifiable information (PII)
- Costs associated with the repair of damaged or compromised company data
- Repair or replacement costs for damaged or compromised IT networks
- Business interruption expenses (for example, hiring extra staff or equipment rental)
- Public relations costs to address reputational damages
- Legal fees for defending the company in privacy violation lawsuits
- Paying for settlements and judgments arising from the lawsuits
- Any other court costs that may occur
These items may be divided into two types of cyber liability coverage:
- First-party coverage addresses expenses associated with a company’s compromised network or stolen data.
- Third-party coverage offers protection when a client or customer sues the company for failure to prevent the data breach.
It is always best to prevent cyber attacks. However, cybersecurity safeguards are constantly challenged by emerging cyber tactics. The next best thing is to ensure you have cyber insurance coverage in case of a data breach.
Secure Cyber Coverage for Your Company
You can rely on Net Friends as your trusted IT partner and source for premium tech services. Our experts will help you perform a comprehensive cyber health or risk assessment to secure your company’s cybersecurity insurance. Contact us today to work together to keep your operations running smoothly in all situations while maximizing your profits.
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