Cyber Liability Insurance: Safeguarding Your Business Against Digital Threats

Cybercrime poses a high risk, whether the target is a fresh startup or a global enterprise. Litigation expenses, major fines, and theft can easily sink a business. Data breaches cost companies around $9.5 million on average, while ransoms exceed $300,000.

That’s where cyber liability insurance comes in. Cyber insurance coverage is essential for securing a business’ finances in case of cyber attacks. Let’s go over cybercrime trends, the importance of cyber liability insurance, and other risk management essentials you should know.

Understanding Cyber Risks

Malicious actors commit cybercrimes against individuals and companies. Businesses of all scales and types, as long as they use technology, can be exposed to digital threats.

Common cyber threats faced by businesses

Knowing the different types of cybercrimes can help you better fortify your security measures against them. Here are common cyber threats to know about.

Data theft: Personally identifiable information (e.g. Social Security Number, phone numbers, and full names.) and other sensitive information are often the target of data theft.

Ransomware: Locks access to an important system, usually using encryption, until you pay the ransom.

Malware: Includes computer viruses, Trojan horses, and spyware. Malware can delete files, steal personal information, disable security, send spam, record keystrokes, stalk users through webcams, and perform other malicious activities.

Social engineering: When cybercriminals psychologically manipulate people into doing certain things or revealing sensitive information.

Phishing: The most common form of social engineering attacks. When cybercriminals pretend to be trustworthy, reputable sources in order to trick victims into revealing sensitive information.

Distributed Denial of Service (DDoS): A DDoS attack involves attempts to disrupt the services of a host connected to a network. As internet traffic continuously floods a server, users will be unable to access a company’s services and websites.

Insider threats: Sometimes the possibility of data leaks and cybercriminal activity comes from within the company.

Examples of high-profile cyber incidents

Walmart was targeted by a cyberattack in October 2023, resulting in the confidential health information of over 85,000 likely being stolen.

Roku, the TV streaming platform used by 80 million people, was hacked in March of 2024. The hackers had likely stolen the usernames and passwords of 15,000 users. This meant that if those people used the same login information on other platforms, their accounts could be compromised.

T-Mobile’s data was breached in August 2021, with over 37 million customers getting their personal information stolen. With numerous data breaches throughout recent years, T-Mobile has reportedly lost millions of customers and had to pay a $350 million settlement to affected customers.

What is Cyber Liability Insurance?

Cyber liability insurance typically covers data breach-related expenses and losses for businesses. When a cyber incident takes place and data is stolen, manipulated, or lost, businesses will need to take action to handle the crisis. This may involve notifying affected parties (e.g. the customers who have had their sensitive data stolen), conducting investigations, and settling any lawsuits that follow.

Let’s dive deeper into what cyber liability insurance covers and how to decide if your business needs cyber insurance.

Type of risks covered by cyber insurance

• Digital forensic investigations: These investigations involve obtaining and analyzing digital evidence that will be admissible in court. Digital forensic investigators are trained in recovering data.

• Legal fees: If your business is involved in litigation, which is common for companies with data breaches, cyber liability insurance can help cover litigation expenses up to the coverage limit.

• Business interruption: Cyber attacks that disrupt normal business operations can result in significant financial losses. Cyber insurance may help cover the losses from disrupted business.

• Cyber extortion: If you need to make any ransom payments to retrieve access to important data and systems, insurance may cover these cyber extortion expenses.

• Regulatory fines: Flawed security measures and failure to comply with cyber and privacy regulations may result in major fines.

• Crisis management costs: Dealing with a cyber attack can be expensive. Insurance may cover the costs of managing network outage situations and cyber incidents.

Exclusions and limitations of cyber liability insurance

Like other insurance types, cyber liability insurance policies often have exclusions and limitations. Here are common ones you might encounter.

Coverage limit: This is how much cyber insurance may cover in a year or for a single incident.

Intentional acts: If you or your employees purposefully commit criminal, fraudulent, or wrongful acts, your cyber liability insurance may not cover these items of expense.

Criminal proceedings: Cyber insurance is unlikely to cover related costs if there is a criminal investigation or grand jury proceeding.

Benefits of Cyber Liability Insurance

Financial protection

One of the main advantages of cyber liability insurance is the financial protection it offers. Data breaches can cost companies hundreds of thousands to millions of dollars. Insurance can cover numerous expenses, such as:

• Notifying parties affected by the data breach
• Regulatory fines
• Digital forensic investigations
• Crisis management

Coverage for legal costs

Legal expenses can rack up easily during data breaches and cyber liability cases. If third parties, such as customers or partners, file claims against you for losses as a result of a cyber attack, cyber liability insurance could help cover the legal fees.

In addition, your business may be subjected to regulatory fines after a cyber incident. Many cyber insurance policies cover fines and penalties for non-compliance with data protection laws. Certain industries are more strictly protected by data protection and privacy laws than others, which can also affect your insurance premium.

Assistance with data recovery

Recovering data and investigating a data breach involves digital expertise and resources. Cyber liability insurance may offer valuable financial assistance to reduce the overall cost of recovering lost or stolen data.

For example, if your business is extorted by ransomware attackers, cyber liability insurance may help cover the ransom paid for data recovery.

Business interruption coverage

Businesses are often disrupted due to cyber incidents, such as DDoS attacks, which can take down a business for hours, days, or even longer. Some cyber liability insurance policies will provide coverage for losses due to a cyber attack disrupting your business. Note what the coverage limit is for income loss.

Reputation management support

As people better understand the importance of digital privacy and data security, data breaches have increasingly hurt the reputation of businesses. Customers often reject businesses that fail to reasonably protect their sensitive information. Some cyber liability insurance policies will pay for public relations expenses that are necessary to restore a company’s reputation following a data breach.

Assessing Your Cyber Insurance Needs

Evaluating your business’ exposure to cyber risks

Not every industry or type of business encounters the same level of cyber risks. If your business processes, stores, or uses any sensitive information, it is recommended to obtain cyber liability insurance. Common targets of cyber criminals in attacks and social engineering include:

• Social Security numbers
• Customer names and addresses
• Medical records
• Credit card information

Determining the appropriate coverage limits

According to a 2023 study, the average cost of a data breach in the U.S. is around $9.48 USD. Generally, cyber liability insurance companies offer coverage limits below $5 million, but you can request more if you believe your coverage needs exceed the typical cyber insurance policy amount.

Your insurance premium quotes will likely go up if your business requires greater coverage limits. However, due to the risks of cybercrime, cyber insurance companies may deny your business’ insurance application if they do not believe you are a suitable match.

Customizing policies

Many insurance providers offer the ability to tailor a policy according to your business’ needs, especially if you’re seeking a more comprehensive cyber liability insurance plan. If your business has any specific or unique needs, talk with a reputable insurance carrier’s representative to see how they can tailor a policy for your business.

Sourcing Business Insurance

Researching Insurance Providers

Finding the right insurance provider for your cyber insurance needs should be a top priority for business owners. Online research and comparison tools are a good way to help you research the top cyber insurance providers. Seeking recommendations from peers and industry experts can also be helpful. Let’s review our top cyber liability insurance providers.

NEXT Insurance: An excellent insurance provider that helps businesses save up to 25% on policies. Serves 1000+ business types with tailored insurance, including cyber insurance. NEXT Insurance offers coverage for wire fraud, data breaches, ransomware, social engineering, hardware failures, and other cybercrime against small businesses.

The Hartford: Trusted insurer for businesses of all sizes and offers immediate assistance through call requests and digital chats. Offers two distinct policies: Data Breach Insurance and Cyber Liability Insurance. Data Breach Insurance includes coverage for notifying affected parties, public relations expenses, and credit monitoring services for data breach victims. Cyber Liability Insurance covers legal expenses, cyber extortion, lost income, regulatory fines, and lawsuits.

Evaluating Insurance Providers

Financial stability is a major factor to consider when assessing what cyber insurance providers are suitable for your business. Look at reputable review sites and customer testimonials to see whether a prospective insurer has the solid financial stability that is necessary for offering cyber liability insurance.

Expertise in cyber insurance is another element to consider. If your business requires substantial cyber insurance coverage, you might want to find an insurance provider who specializes in cybersecurity and cyber insurance.

Here are some useful insurance agencies and services that can help you compare cyber insurance quotes and coverage.

• Simply Business
• Tivly
• Cover Wallet

Requesting quotes and proposals

When requesting quotes for cyber liability insurance, it is important to provide accurate information about your company. The insurance company may inquire about your business industry, number of employees, type of data stored, and other relevant details. After you receive quotes from different cyber insurance carriers, take the time to compare the different premiums and coverage options.

How much cyber liability insurance costs will depend on numerous factors, such as:

• Industry
• Type of business operations
• Business size
• How robust your digital security measures are
• Your location
• Coverage limits
• Deductible

Reviewing policy terms and conditions

Make sure you thoroughly review the cyber insurance policy terms and conditions before purchasing any insurance product. Cyber liability insurance policies often have limits, exclusions, and conditions. Evaluate your business’ needs and risk levels to ensure your cyber liability insurance coverage is adequate.

Deductible: When an eligible cyber incident occurs, the deductible refers to how much your business must pay first before cyber liability insurance will kick in. Deductibles average around $10,000 for cyber insurance.

Premium: This is how much you need to pay every month for coverage. The more comprehensive or unique your coverage, the higher the premium will be. Cyber liability insurance premiums are rising as cybercrime becomes more prevalent and advanced. Choose a premium that aligns with your business’ risk levels and cybersecurity budget.

Coverage limits: The typical cyber liability insurance policy caps coverage at around $5 million per cyber incident. More affordable policies may have lower limits around $500,000 per occurrence.

Summary

Cyber liability insurance is highly recommended for any business that stores, processes, or otherwise handles sensitive information. If your business handles transactions digitally, collects health or legal records, or stores financial information, cyber insurance could help you save hundreds of thousands, if not millions, of dollars.

Other than obtaining cyber liability insurance, businesses should also implement cybersecurity measures. By keeping software updated, spreading cybersecurity awareness, and sticking to data security best practices and regulations, you can decrease the chances of a devastating cyber attack.

Additional Resources

Here are some additional resources to help you mitigate digital risks and protect your business from malicious parties.

• Government Resources and Tools on Cyber Defense
• NIST Cybersecurity Framework
• Federal Trade Commission on Data Security