How Cyber Insurance Can Respond To Data Breaches
According to a recent IBM report, the average cost of a data breach in 2020 was $3.86 million. Even though it's a slight decrease from 2019, recent trends connected with the global pandemic and the increasingly remote workforce show that the number of data breaches is constantly rising.
It is a common misconception that cybercriminals only target bigger companies with revenue in the millions. That's simply not true. Cyber crime is also targeted at small businesses and startups, presuming that they have weaker security protocols and haven't invested as much money and expertise into protecting their online data.
No matter the size, all businesses are at risk of a data breach. This is particularly true for tech companies and companies that handle sensitive customer data, such as credit card information, social security numbers, and other confidential digital records. Recovering from a data breach is a daunting proposition and the results of an attack can be devastating for any business.
The best thing you can do for your company is to be preventive instead of reactive and take steps that can help minimize the chances of a data breach occurring. Creating a risk management policy and incident response program, educating your staff, and keeping up with technology solutions when establishing your security protocols are just some of the measures businesses should take to prevent criminals from hacking into your systems.
However, perfect protection from cyberattacks doesn't exist, which is why you should consider transferring some of your risk to a third party. An adequate cyber insurance policy can help businesses deal with the consequences of a data breach by minimizing the damage inflicted to your business, both financially and structurally.
Data Breach Sources Cyber Insurance Can Cover
The majority of data breach incidents stem from the digital world. Cyber crime is extremely sophisticated and hackers are constantly seeking different methods for compromising their victims' networks. However, sometimes even a simple human error or an oversight can lead to a data breach with severe consequences. Let's have a look at what attack sources cyber liability insurance would respond to:
- Hacking attacks: The most common ones are malware attacks. They come in many forms, but the most concerning is the rise of ransomware attacks where hackers hijack your data and expect money to release it back to you (ransomware). It is predicted that a business will fall victim to a ransomware attack every 11 seconds in 2021. However, phishing attacks have also become commonplace and they are particularly dangerous because they rely on psychological manipulation to trick their targets into giving away sensitive information.
- Given that human error causes 90% of cyberattacks, it is essential that you provide adequate training for your employees and implement strong security protocols.
- Data theft/leaks: Your employees could access confidential information with the intent of distributing or copying it without authorization. They could also grant criminals access to proprietary data that would give them material for insider trading schemes. Given that 20% of cyberattacks are caused by the misuse of privilege, businesses should be careful when giving access to staff members and keep the circle small.
- Loss of devices or physical theft: Although it's not a very common source of a data breach, a stolen laptop, smartphone, or even thumb drive could lead to a company's network being compromised.
How Does Cyber Insurance Respond to a Data Breach?
A cyber liability policy is split into two types of coverage; first-party and third-party coverage. First-party covers your costs related to a data breach, whereas the third-party policy responds to the damages suffered by other direct victims of the breach.
Suppose hackers steal or expose your confidential information. An extensive data breach insurance policy would pay for the following:
- Notification costs: This is a significant expense because when a company becomes aware of a data breach, it is their obligation to investigate the extent of the damage and notify everyone affected.
- Credit Monitoring: Simply put, your insurance policy would kick in to cover all the victims' insurance policies. Regulators require credit monitoring to ensure proper protection and compensation for all affected parties.
- Computer Forensics: Cyber insurance covers the costs of hiring cybersecurity experts to look into the source and scope of the breach and contain further damage. They should also help improve security protocols and prevent future exposure.
- Data Loss, Recovery, and Recreation: This process requires expert investigative work and can be a very lengthy and expensive process.
- Extortion Attempts: If hackers steal valuable information that's crucial both for your business and your clients or partners, they could ask for ransom money to return that data to you. Your insurance company will help you assess the situation and cover the ransom if paying it is in your best interest.
- Deceptive Transfer of Funds: This type of fraud is often initiated as a social engineering attack where the cybercriminal poses as a company executive urging employees to provide information that can give them access to bank accounts or to simply make fraudulent transitions themselves. If one of your employees gets tricked into transferring money from the company account into the hacker's account, that loss could be covered by your insurance policy.
- Business Interruption/Loss of Revenue: Businesses are sometimes obligated to shut down operations for months until they can contain all the consequences of a data breach. If that happens, your insurance policy would cover your lost business income during that downtime.
- PR Activity: Cyberattacks can have serious PR implications for any company if they are serious and involve a large number of third parties. The insurer covers the cost of hiring public relations experts that could help minimize the reputational damage and any other public relations fallout resulting from the data breach.
While cyber insurance can help your business with many of the financial strains that a cyberattack, such as a data breach, could cause, it's important to remember that insurance does not protect you from cyber crime.
Businesses need to invest in risk management processes first to minimize the frequency and the extent of potential data breaches. Cyber liability and other insurance policies serve as financial support nets that can help businesses survive data breaches that might have been financially crippling had it not been for the many costs that well-constructed insurance policies cover.