Cyber Security Insurance-Benefits, Exclusion clauses, Coverage Options
Cybersecurity insurance, also known as cyber liability insurance or cybersecurity insurance, is a type of insurance that helps reduce the financial risks associated with doing business online.
Cyber insurance policies are sold by many of the same providers that offer related business insurance, such as E&O, business liability, and commercial property insurance.
The essence of this article is to show you the benefits of cyber security, different cyber security coverage options, measures to reduce the premium on cyber security, common exclusions in cyber security insurance, and how you can successfully file your cyber security claim.
History and Development of Cyber Security Insurance
The history of cyber insurance can be traced back to the late 1990s, when the first cyber liability policies were developed for the Lloyd’s of London market. The early works in the 1990s focused on the general merits of cyber insurance. In the late 1990s, when the business perspective of information security became more prominent, visions of cyber-insurance as a risk management tool were formulated.
Cyber insurance policies have changed over time to cover a broad range of cybercrimes, including ransomware, cyber extortion, social engineering attacks, system failures, and business interruptions from cybersecurity incidents.
Common types of cyber security insurance Coverage Options
Common types of cyber security insurance coverage include:
- Privacy Liability Coverage: Protects organizations from liabilities resulting from privacy law violations or cyber incidents related to private data.
- Network Security: Covers network security failures, such as data breaches, cyber extortion demands, malware infections, business email compromise events, and ransomware.
- Network Business Interruption: This helps organizations that are facing an operational cyber risk, such as system failures or security failures, recover lost profits, fixed expenses, and additional costs incurred while being affected by the incident.
- Errors and Omissions Coverage (E&O): Protects organizations from cyber events that hinder the delivery of services to customers, such as software and consulting services, and traditional professional services by doctors, lawyers, or engineers.
- Media Liability Coverage: Covers claims related to media content, such as defamation, copyright infringement, and libel.
These types of coverage can be combined in various ways to create a comprehensive cyber insurance policy that meets the specific needs of an organization. Cyber insurance policies can also include third-party coverage, which protects organizations from losses suffered by others due to a cyber event or incident, based on their business relationship with the insured organization
What are the key factors to consider when choosing a cyber security insurance provider?
When choosing a cyber security insurance provider, several key factors should be considered:
Reputation and Expertise: Assess the insurance provider’s reputation, expertise, and track record in the cyber insurance market. Look for a provider with a strong understanding of cyber risks and a history of effectively handling cyber insurance claims.
- Coverage Offered: It is necessary that you evaluate the types of coverage offered by the insurance provider. Ensure that the coverage aligns with your organization’s specific cyber risk profile and provides comprehensive protection against a wide range of cyber threats.
- Cost and Deductibles: Consider the cost of the insurance premiums and the deductibles associated with the coverage. Compare the pricing and deductible structures of different insurance providers to find the most cost-effective option that meets your organization’s needs.
- Policy Flexibility: Look for an insurance provider that offers flexible policy options, allowing you to tailor the coverage to the unique requirements of your organization. Flexibility in policy terms and conditions can be valuable in ensuring that the coverage is well-suited to your business.
- Claims Process and Support: Evaluate the insurance provider’s claims process and the level of support offered in the event of a cyber incident. A responsive and supportive claims process is essential for efficiently managing and recovering from cyber attacks.
- Risk Assessment and Mitigation Services: Some insurance providers offer risk assessment and mitigation services as part of their cyber insurance offerings. Consider whether the provider offers these additional services to help strengthen your organization’s cyber security posture.
- Third-Party Coverage: If your organization interacts with third parties, such as customers or partners, consider whether the insurance provider offers robust third-party coverage to protect against liabilities arising from cyber incidents involving external parties.
- Cybersecurity Expertise and Support: Assess whether the insurance provider offers access to cybersecurity experts, breach response teams, and other resources that can assist your organization in preventing, detecting, and responding to cyber threats.
By carefully considering these factors, organizations can make informed decisions when selecting a cyber security insurance provider that best aligns with their risk profile and coverage needs
Factors to Consider Before Choosing a Cyber Security Insurance Coverage Option
Factors to consider before choosing a cyber security insurance coverage option include:
- Comprehensiveness of coverage: Ensure that the policy covers the specific types of cyber risks your organization faces, such as network security, privacy liability, and business interruption.
- Insurance company’s reputation: Choose an insurance company with a proven track record of paying indemnity claims promptly and fairly.
- Cost of the policy: Consider the premiums and deductibles, as well as any additional costs that may be incurred during the claims process.
- Company’s cybersecurity posture: Insurance companies may require organizations to maintain a certain level of cybersecurity hygiene, such as using endpoint detection and response (EDR) systems.
- Assets and devices: It is important that you identify the assets and devices that have access to sensitive data, and ensure that the insurance policy covers the protection and recovery of these assets.
- Geographical and remote presence: Consider the risks associated with operating from or having a workforce in different countries, and ensure that the insurance policy covers these risks.
- Company revenue: The size of the organization can influence the cost of coverage, as well as the maximum amount of losses generated by a cyberattack that the insurer covers.
- Types of coverage: Organizations can tailor their policies according to the most frequent or dangerous risks they want to cover.
- Additional services: Some insurance policies offer access to free services, such as cybersecurity consultations or incident response services.
- Policy renewal: Regularly review the cyber insurance policy to ensure that it still meets the organization’s needs and that the coverage remains relevant.
By considering these factors, organizations can make informed decisions about their cyber insurance coverage options and ensure that they are adequately protected against cyber risks
What are the common exclusions in cyber security insurance policies?
Common exclusions in cyber security insurance policies include:
- Prior Knowledge Exclusion: This provision states that coverage will not apply to incidents that were known or reasonably foreseeable by the insured before purchasing the policy.
- Unencrypted Data Exclusion: Insurers may deny claims if a data breach involves unencrypted data, emphasizing the need for businesses to follow industry best practices for data encryption.
- War and Terrorism Exclusion: Cyber insurance policies typically exclude coverage for losses resulting from acts of war, terrorism, or other hostile actions. However, some policies may include exceptions for cyber terrorism.
- Wear and Tear Exclusion: While seemingly unrelated to cyber incidents, wear and tear exclusions typically apply to physical components of a computer system, such as hardware or storage devices, which may fail over time.
- Contractual Liability Exclusion: This exclusion may limit or exclude coverage for losses arising from a business’s contractual obligations, such as indemnity clauses in contracts with vendors or clients.
- Lack of Security Measures: Insurers may deny claims if the insured has not taken adequate steps to safeguard data, highlighting the importance of maintaining required security measures.
- Injuries and Damages Exclusion: Some policies do not cover claims related to physical injuries but may cover costs involved in dealing with emotional distress and anguish.
- Loss of Electronic Device: The policy may not pay for an employee losing a company-issued portable electronic device, as this can be covered under property insurance.
- Vicarious Liability: The claim may be denied if the breach occurred in a third-party vendor’s system.
- Government Entity or Public Authority: The policy may not cover recommendations or orders from government or public authorities.
It’s important for businesses to carefully review and understand the exclusions in their cyber insurance policies to ensure they have appropriate coverage for their specific risks
What is the patent, software, and copyright infringement exclusion in cyber security insurance policies?
Patent, software, and copyright infringement are typically covered by intellectual property insurance, not cyber insurance policies. However, some broadly written cyber policies may cover defense costs associated with copyright infringement claims if they are the result of actions by a non-management employee or an outside third party. It’s best to speak to your licensed broker to see if your cyber policy provides this coverage
How to successfully file a cyber security insurance claim
To successfully file a cyber security insurance claim, businesses should follow these steps:
- Notify the insurer: As soon as a cyber incident is suspected, notify the insurer immediately. Prompt notification is essential to ensure efficient mitigation of the loss.
- Provide detailed information: Provide detailed information about the incident, including the type of attack, the time of attack, the extent of the damage, and any evidence of the attack. Submit proof of the incident, including screenshots, logs, and other evidence.
- Follow the insurer’s instructions: Follow the insurer’s instructions and provide any additional information they may request. Document all interactions with the insurer, including the date, time, and name of the person you spoke to.
- Document all expenses: Keep records of any expenses related to the incident, such as costs to investigate, clean up, and restore affected systems.
- Be thorough and accurate: When filing a cyber insurance claim, it is important for businesses to be thorough and accurate in their documentation and reporting. This includes providing detailed information about the incident, the scope of the damages, and the steps taken to mitigate the incident.
- Review the policy: Review the cyber insurance policy to determine the type of claims it covers as well as any exclusions.
- Stay informed: Keep the insurer apprised of any developments during the claims process. Be aware of any deadlines for filing the claim.
By following these steps, businesses can increase their chances of successfully filing a cyber security insurance claim and receiving the coverage they need to recover from a cyber incident
Examples of cyber security risk that require insurance Coverage
Examples of cyber security risks that require insurance include:
- Data breaches
- Network security failures
- Cyber extortion demands (ransomware)
- Business email compromise (BEC)
- Malware infections
- Cyber extortion (data theft)
- Denial of service attacks
- Social engineering fraud
- Third-party liability (e.g., data breaches caused by a vendor)
- Regulatory fines and penalties
- Loss of intellectual property
- Loss of revenue due to cyber incidents
- Legal expenses related to cyber incidents
- Crisis management and public relations expenses
Cyber insurance policies typically cover these risks, providing financial protection and assistance in managing and recovering from cyber incidents
What are some examples of cyber security risks that are typically covered by Insurance
Examples of cyber security risks that are typically covered by insurance include:
- Data breaches
- Network security failures
- Cyber extortion demands (ransomware)
- Business email compromise (BEC)
- Malware infections
- Denial of service attacks
- Social engineering fraud
- Third-party liability (e.g., data breaches caused by a vendor)
- Regulatory fines and penalties
- Loss of intellectual property
- Loss of revenue due to cyber incidents
- Legal expenses related to cyber incidents
- Crisis management and public relations expenses.
However, it’s important to note that patent, software, and copyright infringement are typically covered by intellectual property insurance, not cyber insurance policies
Benefits of having a cyber security insurance and the process of obtaining a cyber security insurance
Benefits of having cyber security insurance include:
- Risk Mitigation: Cyber insurance policies often require organizations to maintain a certain level of cybersecurity hygiene, such as using endpoint detection and response (EDR) systems. This can help reduce the risk of cyber attacks.
- Recovery Resources: Cyber insurance policies cover the costs of professional services to aid with recovery, including the services of experienced crisis management professionals (such as financial, crisis communications, and legal experts).
- Limited Financial Liability: With cyber insurance, organizations are in a better place financially to respond to cyber attacks. The financial compensation will help you be able to quickly respond and lessen the cost burden on your organization.
- Peace of Mind: Cybersecurity insurance provides businesses and individuals with a sense of security by guaranteeing their financial stability in the event of a cyber attack.
- Competitive Differentiation: Cybersecurity insurance coverage can make businesses and organizations stand out by highlighting their dedication to safeguarding customer data and proactively preparing for cyber attacks.
The process of obtaining cyber security insurance involves:
- Assessing your organization’s cyber risk profile: Identify the types of cyber risks your organization faces and the potential financial impact of a cyber incident.
- Researching insurance providers: Research insurance providers that offer cyber insurance policies and compare their coverage options, premiums, and deductibles.
- Obtaining quotes: Obtain quotes from multiple insurance providers to compare pricing and coverage options.
- Reviewing policy terms and conditions: Carefully review the terms and conditions of the policy to ensure that it aligns with your organization’s specific cyber risk profile and provides comprehensive protection against a wide range of cyber threats.
- Purchasing the policy: Once you have selected an insurance provider and policy, purchase the policy and ensure that all necessary documentation is completed.
- Maintaining cybersecurity hygiene: Maintain the required level of cybersecurity hygiene to ensure that the policy remains in effect and that the organization is eligible for coverage in the event of a cyber incident.
By following these steps, organizations can obtain cyber security insurance coverage that aligns with their specific cyber risk profile and provides comprehensive protection against a wide range of cyber threats
What are the typical costs associated with cyber security insurance policies
The typical costs associated with cyber security insurance policies vary based on several factors, including the level of coverage, deductible, and the size and industry of the business.
For personal cyber insurance, the average annual premium is between $300 and $1,200, depending on the level of coverage and deductible chosen. For business cyber insurance, the average cost is between $500 and $5,000 per year, with prices varying based on factors such as the size of the business, industry, and the strength of security measures.
Some factors that influence the cost of cyber insurance include:
- Size and industry of the business
- Amount of sensitive information the company maintains
- Annual revenue
- Strength of security measures
- Coverage level
- Deductible
- Claims history
- Location
The cost of cyber insurance can also vary based on the type of coverage, with first-party coverage being less expensive than third-party coverage. Keeping cyber insurance costs down can be achieved by focusing on strong security measures, educating employees, and choosing a lower deductible, although this will result in higher premiums
How do insurance companies determine the premium for cyber security insurance policies?
Insurance companies determine the premium for cyber security insurance policies based on a variety of factors, including the likelihood of a business suffering a cyber attack and the potential size of the resulting damages. Some of the key factors that can influence cyber insurance premiums include:
- Company size and revenue: Larger businesses with higher revenues typically face greater cyber threats, resulting in higher premiums.
- Security measures: Businesses with robust cyber security measures in place can receive lower premiums, as they demonstrate a proactive approach to managing cyber risk.
- Historical claims: A business that has made claims for cyber incidents resulting in significant losses in the past will usually pay a higher premium, as will companies that have made frequent claims.
- Industry sector: The industry in which a business operates significantly impacts the premium, as some sectors are more frequently targeted by cyber criminals.
- Data management practices: The type of data a business processes, stores, and collects is critical when calculating cyber insurance premiums. Companies handling valuable intellectual property or sensitive customer information face higher premiums.
- Third-party liability: Companies that work closely with third-party suppliers or have a large supply chain network are often subject to additional premiums.
- Employee training and awareness: Businesses that provide cybersecurity training for their employees can be viewed as a slightly lower risk, attracting a proportionately lower premium.
- Policy limits: The maximum payout an insurance company will make if a business suffers a cyber attack directly impacts cyber insurance costs. A higher policy limit will attract higher premiums.
- Regulatory compliance: Achieving compliance in highly regulated industries can be daunting. Cyber insurance can help organizations meet regulatory standards before and after a cyber incident.
- IT businesses need additional liability protection: Since virtually all businesses have a digital component to their operations, cybersecurity is an important consideration for any company. Most companies will likely need first-party protection of their direct assets. But many businesses in the information technology industry could benefit from additional third-party coverage as well.
By understanding these factors, businesses can take steps to potentially save money on cyber insurance premiums without compromising coverage. It’s important to work with a knowledgeable insurance agent to find the most comprehensive, affordable cyber insurance policy for your company