What is Cyber Insurance? How does Cyber Insurance Work?
One of the best ways of protecting against the potentially devastating effects of a cyber-attack is by applying for cyber insurance coverage for your business.
Across the globe today, cyber-attacks are on the rise. Right from large businesses to governments and individuals, no one is immune to cyber-attacks.
The world is moving towards a highly digitized environment. And as such, the threat of cyber-attacks cannot be downplayed or ignored. The losses from these attacks can be especially devastating. In such an environment, cyber insurance becomes indispensable against back-breaking financial losses. Cyber risks aren’t limited to sensitive sectors such as financial services, healthcare, governments. Even the companies that haven’t generally faced a cyber-attack need to consider cyber insurance to protect against a potential cyber-attack in the future.
What is Cyber Insurance?
Cyber insurance works on similar lines, such as auto or homeowners insurance. It offers businesses protection from potential losses caused by events, such as malware or ransomware attacks, distributed denial-of-service (DDoS) attacks, or other forms of cyber threats.
Since every business is different vis-à-vis their needs for cyber-insurance protection, the cyber insurance coverage offered to a business is often customized to help the business effectively address or mitigate the risks of a cyber-attack.
Common Cyber Insurance Challenges
Offering cyber-insurance solutions and coverage is becoming increasingly difficult to plan. Factors such as severity, frequency, and cost of potential losses caused by a cyber-attack make it difficult to put a price on cyber-risks or losses that a business can incur. This can make it challenging to formulate comprehensive cyber insurance packages.
Projecting future trends and risks is again difficult to predict as cyber-attacks become more sophisticated. It creates uncertainty about future threats. Lack of predictability has caused insurers to become highly selective when it comes to designing cyber-insurance policies. In certain cases, insurers might reduce coverage or introduce coverage limits on certain aspects of a cyber-attack. On the other hand, premiums can easily spike for higher-risk organizations and industries.
Doesn’t a Management Liability or Professional Indemnity Policy provide Cyber-attack Coverage?
While your management liability or professional indemnity policy might include certain aspects of cyber coverage, these tools are not designed to offer protection against the complete spectrum risks posed by a cyber-attack. So any coverage will be in the form of a “cyber-extension” coverage. In other words, management liability or professional indemnity policies don’t offer you the kind of protection you need when compared to coverage offered by a standalone cyber-insurance policy.
Furthermore, cyber-extensions offered under a management liability or professional indemnity policy typically offer lower coverage limits and cover a limited range of claims.
How does Cyber Insurance Work?
Cyber insurance can help protect your business from the devastating financial liabilities caused by a cyber-attack. Your cyber-insurance plan covers a broad range of risks posed by a cyber-attack. Certain cyber-insurance policies also offer physical damage coverage for hardware and coverage for income-loss the business might incur. And as mentioned above, cyber-insurance plans can be customized to align with the current security position of a business.
Now let’s look at how cyber-insurance works and what you need to know about your cyber-insurance coverage.
First up, your cyber-insurance policy can serve as a risk mitigation tool. It can help cover associated costs of recovery in the event of a cyber-related security breach. You can understand how cyber-insurance policies work in the context of the following question:
What specific costs are covered by a cyber-insurance policy?
A standalone cyber-policy typically covers the following:
- Incident response fees and investigation fees coverage.
- Expenses for conducting digital forensics.
- Business interruption loss coverage.
- Coverage for extortion and ransomware negotiation.
- Credit monitoring and protection.
- Public relations costs.
- Recovery of data and systems and restoration.
- Expenses of legal representation.
- Network security, privacy, as well as notification coverage.
- Coverage of regulatory fines – wherever insurable by law.
- Media liability coverage.
- Coverage for transmission of damage and malicious content.
In addition to loss coverage, a cyber-insurance policy may also offer additional support in the form of pre-breach cyber-risk management.
You need to be aware of several considerations and factors when applying for a cyber-insurance policy. You should work closely with your cyber-insurance policy broker and provider to get coverage that ensures a fast and seamless response to any damage or loss incurred after a cyber-attack and ensure business continuity.