Cyber Insurance, an essential weapon for your company. In the modern world of the internet, cybercrimes especially data breaches are becoming a commonality for companies, small and large scale businesses and even corporations. Such breaches are inevitable and most businesses know that they are going to happen over time. They leave businesses with huge and irreparable data losses and the risk of bankruptcy. Because cyber security threats are only overcome by taking expensive measures that cost a lot more than what most businesses can pay for.
More cybercrimes such as eavesdropping, phishing, viruses, worms, scams, hacking, intrusions of various kinds, and denial service attacks also contribute to the increasing need of cyber security for businesses. Currently, a large industry including McAfee is carrying out research efforts centered on creating and devising tool and technologies that can detect cyber security threats and abnormalities in the cyber infrastructure. Despite these efforts over the last decade, cyber security methods and techniques have failed to achieve the perfect or near-perfect security protection due to software, hardware, and cryptographic methodologies. The failure arises because of a number of reasons, a few of which are given below:
- Extreme difficulty in developing solutions that can cater network attacks based on variable intentions
- Confused and misused incentives between security product vendors, network users, and regulatory authorities with regards to keeping the network secure and protected
- Cyber security vendors have no profits of introducing diligent products in the market
- Difficulty in measuring risks that contribute to challenges in designing risk removal solutions
- Dearth of sound technically feasible solutions
- Efficiency of users in taking advantage of benefits of technical solutions
Therefore, all cybercrimes make businesses vulnerable as they have no sound means of risk management whatsoever. And in order to plan risk management, businesses need to figure out what measures need to be taken separately for distinct types of risks. One such essential measure that proves vital in solving their problem is an insurance called the Cyber Insurance.
What is Cyber Insurance?
Cyber Insurance, sometimes also referred to as cyber insurance policy, cyber liability insurance coverage, and cyber risk insurance, it helps businesses and organizations in covering up the finances related to the loss of information or damage to networks and IT systems. Cyber Insurance also protects businesses from various risks that are related to information technology activities and infrastructure. It has its roots in Errors and Omissions (E&O) insurance and started getting the attention of mainstream IT companies back in 2005. Currently, at least one in three US companies has some sort of Cyber Insurance and the total value of premiums of Cyber Insurance are forecasted to reach $7.5 billion by the year 2020.
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As previously mentioned, both prevention of cyber risks and maintenance of cyber security are expensive responsibilities. According to a UK Government survey, the average cost of a cyber security breach can be anywhere from 600k GBP to 1.15m GBP for large scale businesses and from 65k GBP to 115k GBP for small businesses. So, although previously existing insurance policies including business interruption, commercial property, and professional indemnity insurance provide some coverage to a few cyber risks but for complete coverage of a range of cyber risks, most businesses are now buying specialized Cyber Insurance along with their regular insurances. Businesses also prefer to buy specialized Cyber Insurance due to the following reasons:
- They handle and process payment card information
- They request and hold considerably sensitive customer details including names, addresses, and banking information
- They are reliant on websites and IT systems for their successful operation
What Does a Cyber Insurance Cover?
As mentioned earlier, Cyber Insurance also protects businesses from various risks that are related to information technology activities and infrastructure. These risks are classified into the first party and third party risks and Cyber Insurances usually cover either or both types of risks. Hacking, data destruction, theft, extortion and denial of service attacks are a few of the most notorious cyber risks. To elaborate what elements of both the first and third party risks a Cyber Insurance can cover, here is a coverage list for first party risks:
- Interruption of business due to downtime
- Loss or damage of various digital assets including software programs or essential data
- Damage to reputation due to security breaches which might result in the loss or theft of customer and intellectual property respectively
- Case of cyber exhortation if a third party threatens to release or damage data due to nonpayment
- Theft of money or equipment
Similarly, coverage list for third party risks is as follows:
- Loss of third party data or failure of systems or software
- Investigation of the breach
- Civil damages due to defamation
- Negligence in publication in print or electronic media
- Defense costs and civil damages associated with security or privacy breach
Why Would a Business Need Cyber Insurance?
Big or small, all businesses are vulnerable to cybercrimes of various sorts, one example being cyber hacking. Businesses deal with sensitive data such the names, contact information and even social security numbers of their customers which often are of extreme importance not only to the business itself but also to a cyber hacker. Furthermore, the traditional insurance policies such as standard property and business insurance do not cover the high-value assets of a business. Such assets are not even covered by the so-called business interruption insurance policy, which leaves businesses with the specialized insurance policy catering cybercrimes known as the Cyber Insurance.
The US and all the first world countries currently have strict cyber security laws along with considerably appropriate penalties and punishments. But even such laws have not been able to stop hackers in their usually successful attempts of telephone hacking, identity theft, and phishing scams. Hackers also use various types of worms and viruses to virtually take over the network, system or the whole IT infrastructure of a business. For such desperate times, large scale businesses usually employ hundreds of people to devise risk management strategies that would safeguard the business from the perils of the cybercrime. But because small businesses cannot afford to employ hundreds of people to devise risk management strategies, they require a good insurance and a good insurance carrier to help them with their risk management.