Is Cyber Insurance Worth It? Advantages, Coverage & Requirements Explained
Sometimes a single click is all it takes: One of your employees falls victim to a malicious email, clicks on a phishing link and suddenly malware begins to spread across your system. Implementing zero trust security and the principle of least privilege helps you limit the spread. But even under optimal circumstances, trojans, keyloggers and ransomware can cause incredible damage to your organization. Restoring your company network to its full functionality could take weeks or months.
Unfortunately, scenarios like these are increasingly common. Faced with a steady rise in malware, ransomware and cybercrime, more and more companies rely on cyber insurance in order to protect themselves from the financial damages associated with digital threats like these. In this article, we’ll look at how cyber insurance can protect your business, what types of coverage are available and the cyber insurance requirements your company must meet in order to qualify for a policy.
What Is Cyber Insurance?
Cyber insurance or cyber liability insurance protects companies from damages and liabilities that arise as the result of hacks, malware attacks or data breaches. As a relatively new branch of the insurance industry, there is no clear standard for what a cyber insurance policy must and must not include. Policies typically cover costs that are directly associated with a security breach: documenting and investigating the attack, data recovery and hardware repairs, notifying consumers and regulatory agencies, crisis management and PR damage control, etc.
Depending on your provider, cyberinsurance plans may also offer additional forms of first-party and third-party coverage, including paying for the lost income of your business or covering fines, legal fees and settlements that result from a breach. How much protection your company needs depends on your line of business, whether you store and process sensitive data and how rigorous your cybersecurity measures are, among many other factors.
Why Is Cyber Insurance Important?
More and more companies use web-based services and tools in order to expand their business, streamline internal processes, increase efficiency or respond to new challenges like the COVID-19 pandemic. As businesses around the world sent their employees home to keep them safe, many began to integrate remote work into their daily operations for the very first time. However, the increase in efficiency and flexibility that the web provides comes at a cost. Our reliance on the internet also makes it a more and more appealing attack vector for hackers and criminals.
According to the FBI, internet crime in the US jumped nearly 70% from 2019 to 2020. The UK similarly recorded a 31% increase in cyber crime during the height of the pandemic in 2020. The collective damage caused by scams, hacks, online fraud, ransomware and similar attacks is estimated to have reached six trillion dollars in 2021.
An impressive figure far too large to comprehend. In practice, it takes a lot less to bring a company to its knees: lost revenue and production, the cost of replacing affected hardware and software, the loss of consumer trust, possible fines and legal fees, etc. Without the safety net provided by cyber insurance, the damages caused by malware infections or data theft can prove catastrophic and leave your business unable to recover.
Cyber insurance does not replace the need for cybersecurity. Insurance cannot protect your company from phishing attempts, malware or insider threats, but it helps minimize the financial damage caused by incidents like these.
Who Needs Cyber Insurance?
Cyber attacks affect companies of all shapes and sizes. While large enterprises are high-value targets for hackers and criminals, their limited IT security measures can make small and medium businesses just as attractive to bad actors. Certain industries, like technology and financial services, are more at-risk than others. However, protection from digital threats has long since become a universal need: Any company that receives, stores and sends digital information can benefit from insurance and risk management.
In fact, the rising demand for cyber insurance shows that there is growing awareness of this issue: In a survey of 5,400 businesses conducted by the insurance provider Hiscox, 41 percent reported having a cyber insurance policy in place, which represents an 8% increase compared to the previous year. So if you do decide to buy cyber insurance, you’re in good company.
What Does Cyber Insurance Cost?
Premiums for cyber insurance vary depending on the strength of your cybersecurity measures, the types and amount of coverage included in your policy and the size of your business (number of employees, annual revenue, etc.), which affects the size of an insurance claim in the event of an attack. The cost per year of cyber insurance typically ranges from around $1,000 for small businesses to tens of thousands of dollars for bigger companies.
However, as a relatively new field, the cyber insurance market is considered very volatile. The lack of long-term data makes it difficult for providers to assess the risks they are taking on. With increased demand for coverage alongside a steady rise in cyber-crime, the price of cyber insurance has been rising quickly. According to the risk management firm Marsh, the cost of cyber insurance has gone up by 130% in the last quarter of 2021 alone.
Alongside higher premiums, the growing threat of cybercrime may also cause insurance companies to rethink what coverages they want to provide. Already, many providers are lowering their cap for payouts, as well as enforcing stricter cybersecurity requirements as part of the underwriting process. It remains to be seen what the future of the cyber insurance business looks like.
Is Cyber Insurance Worth It?
Like all forms of insurance, cyber insurance allows businesses and individuals to offload a financial risk – in this case the damage caused by a hack or data breach – onto their insurance provider. How big that risk is depends on many factors: the size of your company, your line of business, how extensively you rely on web-based tools and services and so on.
Ultimately, it’s up to you to decide whether cyber insurance is worth the cost or if you would rather take the risk of covering your own losses in the event of a breach. It’s worth noting, however, that the potential cost of hacks may be larger than you think. According to the Hiscox Cyber Readiness Report, the average cost of a cyber incident for businesses with 50 to 249 employees is $184,000. Companies with between 250 to 999 employees face an average cost of $715,000.
What Does Cyber Insurance Cover?
When it comes to cyber insurance, one key distinction is between first- and third-party coverage. First-party insurance covers damages your company faces as the result of an attack. This includes the cost of repairs, data recovery, lost revenue and so on. Third-party insurance, however, covers legal expenses for privacy lawsuits, claims of negligence and similar suits. In general, a comprehensive cyber insurance policy should cover both first- and third-party damages. The specific terms of your policy depend on the provider and insurance plan you choose.
First-party damages are damages to your business caused by the loss or theft of data. A typical plan covers everything from attacks by hackers to insider threats and even accidents like power surges or hardware malfunction. Costs that are covered by first-party cyber insurance include:
investigating and documenting the source of the breach
data recovery services
hardware and software repairs
notifying customers, business partners and regulatory agencies
setting up credit monitoring services for affected customers (required under US law)
Note: By default, cyber insurance only covers the cost of restoring your computer systems to their original level. Additional improvements, also referred to as betterment, are generally not included. However, some policies may allow for additional upgrades intended to eliminate vulnerabilities and prevent future attacks.
Third-party damages are claims made against your company following a security breach. If sensitive data or personal information was exposed during a cybersecurity incident, your business may find itself in hot water with consumers, business partners and government agencies. Third-party cyber insurance helps protect your company by covering the cost of your legal defense in cases such as:
claims of negligence or breach of contract
fines for compliance regulations
Note: Companies that provide software or hardware products to clients need technology errors and omissions insurance in order to protect themselves from liability in the event of a cyber incident affecting their customers.
Crisis Management & Additional Benefits
A business that suffered a data breach not only faces financial damages, but also damages to its reputation. Whether a breach was caused by negligence or a hacker gained access to your systems despite your best efforts, the result can be the same: the loss of your customers’ trust. Effective crisis management and clear communication are essential to minimizing the public fallout after an attack and restoring your company’s image.
In order to help you respond to an attack quickly and effectively, some insurance contracts cover services like data breach coaches, who help you meet the legal requirements for documenting and reporting cyber attacks, and specialized PR firms, which can assist you with your crisis communication.
Does Cyber Insurance Cover Ransomware Payments?
Ransomware payments are a controversial issue. Following a ransomware attack, many companies ultimately decide to pay out in order to regain control of their systems, because the alternative would be weeks of standstill or the permanent loss of critical data. Similarly, insurance companies often see a ransom payment as the lesser evil compared to covering the cost of large-scale repairs and recovery. Many providers help affected companies negotiate with hackers and reimburse clients for the ransom payment. As of today, a typical cyber insurance policy does cover ransomware payments.
However, experts believe that ransomware coverage and the willingness to pay attackers has led to a vicious cycle. Over the last few years, both the number of ransomware attacks and the amount of ransom demanded by hackers has increased significantly. If this trend continues, insurance providers may have to revisit their policy of covering extortion payments in the future. The insurance industry is already facing growing pressure from regulators and governments. Following a Senate roundtable on the topic of cybercrime in 2021, AXA announced that it will stop paying for ransomware in France.
Does General Liability Insurance Cover Cyber Attacks?
Commercial general liability (CGL) insurance is a key part of any company’s risk management strategy. However, businesses that expect their existing insurance to cover the damages caused by hacks and data breaches may be in for a rude awakening. Take Sony, for example: Following a hack in 2011, Sony filed an insurance claim with Zurich American under their commercial general liability policy. Zurich denied the claim and filed suit, leading to a lengthy legal battle that was eventually settled out of court in 2015.
The problem is that general liability insurance, property insurance and other types of coverage were not written with cyber attacks in mind. As a result, the language used in these policies can be open to interpretation. For instance, typical policies cover the loss of “tangible property”. Whether data qualifies as tangible for the purposes of insurance coverage has been argued in court many times, with no definitive result. But even if a judge might ultimately rule in your favor: After an expensive cyber attack, most companies simply don’t have the time or resources to argue their case in court.
Cyber insurance is specifically tailored to cover hacks, data breaches and similar incidents, meaning businesses can be certain they will get the help they need after an attack. Insurers, likewise, are aware of the risk of ambiguous language in CGL and property insurance. In order to address loopholes and silent cyber (unintended cyber exposure in traditional insurance), many providers are adding specific exclusions to their contracts, which rule out reimbursement for the loss of data or hardware damages.
Cyber Insurance Coverage Requirements
In order to determine your premium, coverage limits and whether you even qualify for cyber insurance in the first place, most providers will carry out a cyber insurance risk assessment as part of their underwriting process. Depending on the size of your company, this process can range from a questionnaire to a detailed analysis carried out over multiple weeks by a cyber security firm. Regular check-ups and reassessments are also possible.
To keep risks at an acceptable level, policyholders are required to meet basic IT security standards in order to qualify for cyber insurance. At a minimum, a company interested in buying cyber insurance must have the following safety measures in place:
All PCs must be equipped with antivirus software and it must be kept up to date.
The company network must be protected using a firewall.
Business data must be regularly backed up using external media or a secure cloud service.
User access rights and permissions must follow a secure provisioning process.
Admin and other privileged accounts must be secured using multi-factor authentication.
The Risks of Failing to Meet Cyber Insurance Requirements
Organizations that do not meet the requirements for cyber insurance may still end up with an active cyber insurance policy. In some cases, this can be the result of deliberate manipulation (i.e. lying during evaluations or on attestation forms), but the more common scenario is that a business showed the required level of security during the initial assessment period, but failed to uphold safety measures over the entire duration of the policy.
This is incredibly risky. Not only are the requirements for cybersecurity insurance common sense safety measures that businesses should be following anyway: If you file an insurance claim and your provider discovers that the safety requirements of their policy were not being followed at the time of the attack, your claim is likely to be denied.
Improving Cybersecurity to Lower Premiums
The reason insurance providers enforce these basic safety standards is that some companies see buying cyber insurance as a way to get around improving their IT security. After all, if your losses in the event of an attack are covered, why should you take extra steps to prevent data theft and keep out hackers? This is a short-sighted approach to cyber security, since the loss of critical or sensitive data can harm your reputation and disrupt your workflow, even if you face no direct financial damages.
In reality, cyber insurance should serve as an extension to your existing IT security measures, rather than a band-aid solution for lacking safety standards. Taking additional steps to improve IT security not only helps prevent attacks, but can also lower your insurance premiums. Your provider may be able to suggest improvements you can implement based on your initial risk assessment. It’s important to remember, however, that any security system is only as strong as its weakest link. For example, employee education often plays a major role in ensuring that safety standards are followed within your organization.
Industry-Specific Compliance Standards
To be eligible for cyber insurance, your company must keep track of who has access to different files and resources. This process, also referred to as User Lifecycle Management, ensures that your employees have the all the permissions necessary to complete their tasks, but no unnecessary permissions that pose a security risk. Managing user access rights from one central platform not only helps you qualify for insurance, but is also a key step for many industry-specific compliance standards.
Compliance regulations that directly specify or greatly benefit from an identity and access management solution include the Sarbanes-Oxley Act (SOX Compliance) in the financial industry, the Health Insurance Portability and Accountability Act (HIPAA) and TIXAX certification in the automotive industry. It is also a component of the ISO 27001 information security standard.
ISO 27001: Access Management Requirements
Everything you need to know about IAM requirements and what documents are needed in preparation for ISO-compliance.
Minimizing Risk Through Identity Access Management
By following the principle of least privilege, only providing permissions and access rights that are absolutely necessary and regularly reviewing privileges through user access reviews, you can greatly reduce the amount of damage a hacker can cause to your organization should they gain access to a company account.
The only problem? Manually tracking permissions and users is a time-consuming process that leaves a lot of room for user error. In fact, it is one of the top 5 access management risks. To ensure that every change is tracked and documented, you need to automate this process.
How IAM Can Protect You From Cyber Attacks
As employees are assigned to new projects or move to different departments, they need access to new files and resources in order to do their job. So far, so good. Unfortunately, businesses rarely remember to remove permissions that are no longer needed, say because a project has ended or a user has left their old department. As a result, many employees end up with way more permissions than they actually need. This kind of privilege creep not only enables data theft from within, but also makes it easy for malware infections to spread across your entire system.
While IAM software cannot prevent an attack, it stops attackers from easily accessing every device in your network. A hacker that manages to bypass your security measures only gains access to the files and resources that the account in question had access to. Stopping privilege creep at your organization, combined with securing endpoints and connected devices, thus minimizes the damage of cyber attacks and data breaches.
tenfold – the IAM Solution for Mid-Market Organizations
IAM solutions like tenfold allow your organization to quickly and easily assign permissions to users, manage access to IT resources and track changes in accordance with compliance standards. As an added benefit, identity and access management eliminates many of the weaknesses and vulnerabilities exploited by cyber attacks.
tenfold is a simple, yet comprehensive IAM solution that is perfectly tailored to meet the needs of medium businesses and offers a variety of plugins that make it easy to integrate tenfold into your existing software environment. All of this and more makes tenfold the IAM software of choice for midmarket organizations.
What makes tenfold the leading IAM solution for mid-market organizations?