Statistically speaking, you’re more likely to experience a cyber attack than a house fire. A report by Security Magazine found that around 2,200 cyber attacks happen each day, which equates to more than 800,000 people being hacked each year. On the other hand, US fire departments responded to an estimated average of 358,300 home-based fires per year. These statistics highlight the critical need for robust cybersecurity measures and the growing importance of cyber insurance.
With cyber threats becoming more frequent and sophisticated, businesses face constant risks like data breaches, ransomware attacks, and other cyber incidents. These threats can lead to significant financial losses and damage to your reputation. That’s where cyber insurance comes in. It’s an essential tool for mitigating these risks, but choosing the right policy can be tricky.
In this comprehensive guide, we’ll help you navigate the complexities of selecting the right cyber insurance policy for your organization. We’ll break down what cyber insurance is, what it isn’t, and the key factors to consider when evaluating a policy. Plus, we’ll share expert insights to help you make an informed decision.
What is Cyber Insurance?
Cyber insurance, also known as cyber risk insurance or cyber liability insurance coverage (CLIC), helps organizations mitigate risk exposure by covering the costs involved in recovering from a cyber-related security breach or similar event. In simple terms, it’s insurance that helps businesses deal with the financial fallout from cyber incidents.
Types of Cyber Insurance Coverage
Cyber insurance policies typically offer two main types of coverage:
- First-Party Coverage: This covers direct losses and costs your organization incurs due to a cyber incident. Examples include:
- Security Breach: Covers the costs to restore systems after a breach.
- Breach Incident Management: Includes expenses related to public communications, legal guidance, credit monitoring, and forensic investigations.
- Loss of Income: Covers business interruption losses due to a prolonged outage.
- Extortion: Covers ransom payments in ransomware attacks.
- Third-Party Coverage: This covers indirect losses and costs incurred due to claims made by third parties. Examples include:
- Privacy Liability: Covers legal fees related to defending events like individual or class action suits related to a breach.
- Cybersecurity Liability: Covers losses to another person’s computer system caused by your data breach.
- Copyright or Trademark Infringement: Covers losses related to legal defense of copyright claims.
What Cyber Insurance is Not
While cyber insurance can be a lifesaver, it’s not a substitute for a solid cybersecurity program. Companies buy cyber insurance for various reasons, including risk transfer. However, it shouldn’t be seen as a replacement for strong security measures. Instead, it should complement your existing cybersecurity strategy. Comprehensive solutions that combine security measures and insurance coverage are the key, and this is where Mitigata excels. Mitigata understands the importance of integrating both elements to provide a holistic approach to cybersecurity.
The Misconception: Insurance as a Security Strategy
Some organizations mistakenly believe that purchasing a cyber insurance policy can replace the need for a robust cybersecurity program. This misconception can lead to significant vulnerabilities. Cyber insurance is designed to provide financial support in the aftermath of a cyber incident, but it does not prevent the incident from occurring in the first place.
The Role of Legal Teams
It’s crucial to involve your legal team in navigating your insurance policy. Conducting tabletop exercises to simulate black swan scenarios can help determine if your policy will pay out in the event of a significant breach. These exercises can reveal gaps in coverage and ensure that your cybersecurity and legal strategies are aligned.
Topics to Consider When Evaluating a Cyber Insurance Policy
Choosing the right cyber insurance policy requires careful consideration of several factors. Here are nine critical topics to evaluate:
1. Buying the Hype
Cyber insurance is a hot topic due to high-profile data breaches and increasing executive awareness. However, it’s essential to avoid getting caught up in the hype and instead make a well-informed decision. An investment in cyber insurance should align with your overall information security strategy.
When evaluating policies, consider how they integrate with your current security measures. For instance, some policies might require you to maintain specific security controls. If your security team is unaware or unprepared to manage these controls, it could lead to exclusions from coverage.
2. Choosing the Right Broker
Cyber insurance policies are relatively new and constantly evolving. It’s crucial to work with a broker who is knowledgeable about the latest provisions and can clearly explain the value of coverages. Don’t hesitate to shop around and get multiple perspectives from different brokers.
A broker well-versed in cybersecurity insurance can help you understand the nuances of different policies and ensure that you select one that fits your organization’s specific needs. They can also assist in comparing the fine print between policies, ensuring that you are not caught off guard by exclusions or limitations.
3. Complexity of the Policy
Cyber insurance policies can be complex. It’s important to understand the coverages, limits, definitions, exclusions, and other details. Engage your legal team to help navigate the contract and ensure it aligns with your information security program.
Policies often contain technical jargon that can be confusing. Your broker should be able to translate these terms into layman’s language. Including your legal team in these discussions can help clarify the policy’s relevance based on your organization’s specific risks and security landscape.
4. Underwriting Surveys
Insurance companies often require underwriting surveys before issuing a policy. Answer these questions honestly, as inaccuracies can lead to exclusions from coverage. These surveys can be challenging, so seek clarification when needed and ensure your responses accurately reflect your security posture.
These surveys typically ask about your current security measures, incident response plans, and overall cybersecurity strategy. The insurance company uses this information to assess the risk level of insuring your organization. Being truthful in your responses is crucial, as any discrepancies can lead to denial of claims in the future.
5. Working with Your Providers
In the event of an incident, your insurance provider will have a list of approved lawyers, public relations firms, and digital forensics firms. Check if your existing business partners can be pre-approved by your insurance provider to assist should an incident occur.
This can be beneficial because working with familiar partners can streamline the response process and ensure that all involved parties are on the same page. It also helps to have pre-approved rates and contracts in place, so there are no surprises during a crisis.
6. Selecting the Coverage
Determining the right coverage amounts for each area (e.g., public relations, forensic investigations) requires careful consideration. Some providers offer premium discounts for mature in-house processes. Measure your risk tolerances and select coverage that meets your needs.
Consider the specific risks your organization faces and the potential financial impact of those risks. Coverage amounts should reflect these factors. For instance, if you handle sensitive customer data, ensure your policy includes sufficient coverage for breach notification and credit monitoring services.
7. Understanding Exclusions
It’s crucial to understand what is not included in your insurance policy and what events can exclude you from coverage. For example, data not encrypted and subsequently lost may be excluded. Ensure your security, legal, and insurance teams are aligned and communicate often to navigate these nuances.
Exclusions can significantly impact the value of your policy. Common exclusions include unencrypted data, failure to maintain security protocols, and incidents resulting from known vulnerabilities that were not addressed. Make sure these exclusions are clearly understood and that your security measures are in compliance to avoid coverage gaps.
8. Cloud Storage and Third-Party Access
Understand how your cyber insurance policy handles data stored in the cloud and third-party access. Disclose all applications and data managed in the cloud to avoid exclusions from coverage. Similarly, ensure that third-party data access is properly managed and disclosed.
Many businesses use cloud services for data storage and processing, which introduces additional risks. Your policy should explicitly cover cloud-based incidents and third-party breaches. Ensure that you have comprehensive agreements with cloud providers and third parties that outline their security responsibilities.
9. Payment of Claims
Inquire about the payout process and how disputes are handled. The effectiveness of your policy hinges on the insurer’s history of paying claims. Ensure the process is straightforward and efficient to avoid delays in receiving support when needed.
Understanding the claims process can prevent frustration during a crisis. Ask your broker or insurer to walk you through the steps involved in filing a claim, from initial notification to final payout. Also, inquire about any potential disputes that might arise and how they are typically resolved.
The Growing Importance of Cyber Insurance
With the constant threat of online attackers—whether they’re cybercriminals, political activists, or government-backed actors—there’s no way to stop all online attacks. That’s why it’s important to have strategies in place for dealing with a cybersecurity breach.
Cyber insurance is one tool that is becoming increasingly popular for businesses. According to Statista, less than half (41%) of businesses in the United States and Europe had a cyber insurance policy in early 2021, despite the tremendous risks. This gap highlights the need for more businesses to consider cyber insurance as part of their risk management strategy.
Getting Started with Cyber Insurance
A good first step is to create a cyber risk profile for your company and list the expenses you want covered in the event of an incident. This risk profile should rank various risks based on the probability of occurrence and potential impact. Some examples of risks include:
- Death and bodily injury
- Cyber extortion
- Physical/asset damage
- Data/software damage
- Intellectual property (IP) theft
- Network security liability
- Network business interruption
- Reputational loss
- Privacy events (liability and incident response)
- Crime/fraud
Consult with a cybersecurity expert to establish your specific level of risk and refine your overall risk appetite.
Practical Steps for Building a Risk Profile
- Identify Critical Assets: Determine what assets are most valuable to your organization. This could include customer data, intellectual property, or operational systems.
- Assess Threats: Identify potential threats to these assets, such as hacking, malware, or insider threats.
- Evaluate Vulnerabilities: Assess your current security measures and identify any weaknesses that could be exploited by threats.
- Estimate Potential Impact: Consider the financial, operational, and reputational impact of a successful attack on your critical assets.
- Prioritize Risks: Rank the identified risks based on their likelihood and potential impact.
Things to Look for in a Cyber Insurance Policy
When selecting a cyber insurance policy, consider the following factors:
1. Experienced Providers
Choose a provider with experience working with businesses of your size and industry. Cyber risks vary widely, so it’s important to select a provider that understands your specific challenges.
An experienced provider will be more adept at tailoring policies to fit your unique needs and can offer insights into the best practices for risk management within your industry.
2. Coverage Options
Ensure the provider offers coverage options tailored to your organization’s unique needs. Policies can vary in terms of coverage limits, deductibles, and specific risks covered. For example, ensure your policy includes coverage for ransomware, a significant threat in recent years.
Review the scope of coverage carefully to ensure it aligns with your risk profile. Coverage should address both first-party and third-party risks, providing comprehensive protection.
3. Good Reputation
Look for a provider with a solid reputation. Online reviews, testimonials, and case studies can provide insights into the provider’s track record and the experiences of other businesses.
A provider with a good reputation is more likely to handle claims efficiently and fairly. Research customer feedback and industry ratings to gauge the reliability of potential providers.
4. Straightforward Claims Process
A straightforward and efficient claims process is essential. Time is crucial during a cyber incident, and a complex claims process can hinder recovery efforts.
Ensure that the provider has a transparent claims process. Ask for detailed information on how claims are handled, the timeline for payouts, and any documentation required.
5. Support and Resources
Preventing an attack is better than mitigating one. Look for providers that offer resources and support to help you prevent cyber incidents. Risk assessments, training programs, and other tools can be invaluable in reducing your cyber risks.
Additional support services can enhance your overall cybersecurity posture. Providers that offer ongoing training and resources help ensure your team is prepared to respond effectively to incidents.
6. Budget Fit
While price is an important consideration, ensure you get the best value for your dollar by choosing a policy that provides the right coverage for your organization’s needs.
Compare the cost of premiums against the scope of coverage and potential benefits. A slightly higher premium might be justified if it offers significantly better protection.
Conclusion: Protect Your Organization with Mitigata
Choosing the right cyber insurance policy is a complex but essential task for any organization. By understanding the key considerations, evaluating your specific risks, and selecting a policy that meets your needs, you can protect your business from the potentially devastating impact of cyber incidents.
At Mitigata, we specialize in providing comprehensive cybersecurity solutions, including cyber insurance and consultancy services. Our experts can guide you through the process of selecting the right policy, ensuring you have the coverage you need to safeguard your organization.
Contact us today to learn more about how we can help you enhance your cybersecurity posture and protect your business from the evolving landscape of cyber threats.
Mitigata: Your trusted partner in cybersecurity and insurance.
