Cyber insurance: Everything you need to know

What is cyber insurance?

Cyber insurance is a policy created to help protect your business from the implications of cyberattacks, data privacy breaches, cyber extortion, and ransomware attacks. Various types of cyber insurance cover business and expenses related to the consequences of data breaches involving sensitive customer data, including investigations, system restoration, legal fees, and recovering compromised business data.

The origin of cyber insurance

Cyber liability insurance emerged in the late ’90s after our dependence on technology started rapidly increasing. As the web grew, so did the incidence of cyber threats, encouraging businesses and organizations to develop cybersecurity strategies to mitigate the potential consequences of data breaches, cyberattacks, information theft, and network disruptions.

The first cyber insurance was relatively primitive, covering liabilities related to a data breach. Because cyber threats have become more sophisticated and complex over time, cyber insurance expanded to cover ransomware attacks, social engineering attacks, financial loss from interruption in doing business, and even reputational damage.

Today, cyber insurance is a vital cyber threat management strategy component of any company that stores and processes private customer data.

Why is cyber insurance important?

Entities that suffer from cyberattacks and data breaches often experience legal liabilities and loss of customers and revenue. Although companies can usually handle small financial losses from cyberattacks, dealing with more significant losses can be devastating. So cyber insurance creates a financial safety net for companies handling sensitive user data and protects them from the effects of data breaches.

The cyberattack on Mondelez International illustrates the importance of cyber insurance. In 2017, this snack giant was hit by the NotPetya ransomware. The impact was severe and included disrupted production and product distribution, inoperative computers, encrypted files, and – the cherry on top – a demand for ransom by the attackers. Even though the ransom turned out to be a guise, the company experienced more than $10 billion in global damages. Although the specific terms of the agreement between the company and the insurer remain confidential, Mondelez received a significant amount of money to cover losses from a cyberattack.

Just as businesses are susceptible to cyber threats, so are individuals. Identity theft, personal data breaches, financial breaches, phishing scams, ransomware – all these threats loom large. Security solutions like NordVPN’s cyber protection offer peace of mind and support if you fall victim to a cyberattack. However, the benefits are currently available only in the United States (recovery from identity theft and financial help in cases of cyber extortion) and the UK (recovery from scam loss and online shopping fraud).

What does cyber insurance cover?

Insurers offer different cyber insurance policies to compensate for damage. While the policies vary depending on your provider and plan, cyber insurance usually covers these main areas:

• Notifications. Companies and organizations must inform their affected customers about data breaches and theft. Cyber insurance covers the expenses associated with these notifications.
• Investigation. Cyber insurance reimburses the costs of the investigation conducted to find out what happened, how it happened, and who’s responsible for it.
• Data recovery. Cyber liability insurance covers all the necessary expenses related to restoring lost or corrupted data after a cyber event.
• Legal expenses. Cyber insurance covers fines, penalties, and legal fees associated with an incident.
• Business interruptions. Cyber liability insurance compensates income losses and operating expenses that follow business interruption from a cyberattack.
• Ransom payments. In ransomware attacks, hackers lock files and hold them hostage until a ransom is paid. Cyber insurance covers these extortion demands.
• Physical system damage. Cyber insurance compensates the physical repair or replacement of hardware damaged during an incident.

Cyber risks excluded from cyber insurance coverage

Cyber insurance is a vital safety net for companies and organizations that hold and manage sensitive personal information. However, it doesn’t cover incidents that were caused by data processors negligence that could have been prevented, such as:

• Insider attacks. An employee makes a mistake that causes the loss of data.
• Human error. An employee accidentally deletes or makes a mistake when configuring data.
• Weak security posture. The company fails to implement industry-standard security measures.
• Known vulnerabilities. An organization fails to update its systems with the latest security patches against known vulnerabilities.

How to choose the right cyber insurance policy

Choosing the best cyber liability coverage plan for your company requires understanding your business’s specific risks and needs. First, assess what kind of data you handle and evaluate the most prevalent cyberattacks in your field of operation before choosing a cyber insurance plan. Then, carefully read the insurance policy’s terms and conditions and ensure you’re aware of any exclusions.

Our advice is to opt for a reputable and financially stable insurance company that specializes in cyber risks and is fully capable of fulfilling your needs. Knowing the ins and outs of cyber insurance yourself is crucial, but you can also consult an experienced broker who can ease this process and help you navigate the insurance market.

Tips to mitigate cyber risk

Cyber threats are a headache for enterprises of all sizes. So it is essential to create a sustainable cybersecurity strategy combining cyber insurance, employee training, robust access control, and vulnerability assessments. You can take the following steps to strengthen your cybersecurity posture:

• Regularly update your software. Updating your software regularly will patch your system against the latest malware and known vulnerabilities.
• Control access to your network. Employ a zero-trust framework and only allow access to your network as users need it.
• Educate your employees. Educate your employees about cyber threats and provide training sessions on recognizing and responding to threats like phishing.
• Develop an incident response plan. Identify the most potential risks for your organization and form a dedicated incident response team. Then create a clear action plan for different cyberattack scenarios and ensure that employees are aware of their roles in case of an emergency.
• Repeat security assessments every now and then. Regular security assessments are essential to detect vulnerabilities before they become serious threats.
• Use a reputable VPN. A NordVPN subscription will elevate your online security by protecting your online traffic and company data from prying eyes.

Investing in cybersecurity may reduce the likelihood of compromised data or cyberattacks and present you as a lower-risk client for insurers. Protected customers get better insurance terms, such as coverage conditions and lower prices.

FAQ

Is cyber insurance worth it?

Yes, cyber insurance is a worthwhile investment. Even though it will not protect you from cyber threats, cyber insurance will cover financial loss related to data breaches. However, it is not a standalone solution – cyber insurance should be a part of a broad risk management strategy.

Who needs cyber insurance?

Cyber insurance is recommended for every business or organization that stores and processes personal customer data. It should also become a part of a cybersecurity strategy in companies that use computer systems to handle daily tasks.

How much is the average cost of cyber insurance?

The average cost of cyber insurance may vary depending on several factors, such as the size of the company, the industry, and the type of data it handles. For example, the average annual premium for small businesses is $1,740, or $145 per month.