Due to financial constraints, most small and medium-sized businesses in the U.S. do not invest enough resources to protect their computer networks adequately. However, with cyberattacks gaining momentum, this is a bad idea. It’s worth noting that the average cost of a data breach incident is now about $200,000. However, this does not necessarily mean you need to set aside that kind of money for emergencies. A more convenient and less expensive option is to carry cybersecurity insurance for your small business. Here’s more detailed information on this topic.
What Is Cyber Liability Insurance?
This is a policy designed to cover the financial losses associated with data breaches and other types of cyberattacks. It helps pay for the resulting legal expenses, monetary penalties, credit monitoring expenses, notification costs, business interruption losses, and the costs of rebuilding the cyberinfrastructure.
How Cyberattacks Happen
Hacking attempts on internet-enabled devices happen at least once every 39 seconds. A cyberattack typically occurs when bad actors attempt to gain unauthorized access to digitally stored information. The most common types of cyberattacks include password attacks, phishing, and malware attacks. In most cases, cybercriminals seek to get hold of sensitive information such as social security numbers, bank account details, and other personal details, which they then use for fraudulent activities. For instance, cybercriminals can breach your clients’ confidential information and sell it on the black market or expose it to other unauthorized parties.
Why Small Businesses Need Cyber Liability Insurance
The majority of data breaches reported in the U.S. every year involve small and medium-sized businesses. Most of the affected businesses usually end up closing within six months, depending on the severity of the attack. Even those that are lucky enough to stay operational struggle to recover their losses. To prevent such eventualities, every small business should have the right cyber liability insurance.
What Does Cyber Liability Insurance Cover?
Cyber liability insurance typically pays for the liability costs resulting from a covered incident. These costs include, among others:
- Data restoration
- Notification costs
- Loss of income
- Crisis management
- Cyber extortion
- Legal costs
Which Type of Cyber Liability Insurance Do You Need?
There are two basic types of cyber liability insurance coverages. These include:
- First-party cyber liability insurance – As the name implies, this policy provides coverage for the policyholder’s direct losses that happen following a cyberattack. It covers expenses such as notification costs, ransom payment, breach investigation, public relations, and the cost of rebuilding the business network. A business that does not store clients’ sensitive information can work just fine with this coverage alone.
- Third-party cyber liability insurance – This insurance policy covers third-party claims and legal costs for any filed lawsuits. Specifically, it pays for costs such as legal defense expenses, settlements, and other legal costs.
The type of coverage you need depends on the nature of your business operations. For example, if you store your customers’ personal data such as social security numbers and financial details, you will need both policies for adequate coverage.
Cyber Liability Exclusions
A typical cyber liability policy only provides coverage for named perils up to the policy limits. It does not cover:
- Property damage and bodily injury
- Intentional acts
- Utility failure
- The cost of upgrading a breached network
- Contractual liability
The right cyber liability insurance policy can help protect your small business from financial losses emanating from cyberattacks. For help evaluating the specific cyber threats your business faces day to day, contact us today at Atlas Insurance in Sarasota, FL.
