Sign up to our newsletter
You may have heard the term “Cyber Insurance” in exceptionally glowing terms, describing it as the next big thing that no sensible business should be without. Or you may also have heard it described as something that is greatly hyped but which is not quite as awesome as all that. As with most things, the truth is somewhere in between these two extremes: It’s something that may be a great tool to help transfer risk in the event of a cybersecurity breach, but only if you apply it with adequate forethought.
As the situation was so eloquently described in last year’s Ponemon report on the rising cost of breaches, “Throughout the world, companies are finding that data breaches have become as common as a cold but far more expensive to treat.” How expensive is that? On average, this year it cost companies $3.8 million; 23 percent more than what it cost two years ago. Per record, this cost is about $217, though this cost varies by industry: Healthcare records cost companies $398 each. This is due in part to heavy regulation in the US around patient privacy and security, and because of a high level of customer turnover as a result of breaches.
One would hope that people would see these numbers and simply be motivated to apply the necessary tools to secure their businesses. But reality is seldom as uncomplicated as that.One would hope that people would see these numbers and simply be motivated to apply the necessary tools to secure their businesses. But reality is seldom as uncomplicated as that. Many businesses are lacking in the understanding, skill or financial wherewithal to tackle this task adequately. If your business is in just such a situation – while it will not help if you have not yet begun the process of protecting your business – if you are improving your security situation, insurance may be a good way to help bridge the gap.
Before you go about looking for cyber insurance, it’s a good idea to become conversant with the two main types of coverage. The first type covers “first party” risks, which is to say loss of or damage to your own data. The second type covers “third party” risks, which involve liability to clients or government and regulatory entities.
Most businesses would likely benefit from both types of coverage.In a typical breach scenario, first party coverage could help with the costs of breach notification, forensics, remediation or data restoration, and identity monitoring services for victims. Third party coverage could help with the costs of regulatory fines and fees, or lawsuits and claims brought by affected customers. Most businesses would likely benefit from both types of coverage. Businesses in heavily regulated industries such as Education and Healthcare will need to be sure to get adequate third-party coverage.
When choosing any type of insurance, the most important things to be aware of are Limitations and Exclusions. These are the “gotcha” items that could invalidate your entire plan. You will want to ascertain whether your plan includes the following:
It is important to remember that you cannot insure against loss of business due to damaged reputation in the aftermath of a breach. And those costs can be significantRegardless of the size of your business or which industry you’re in, it is best to begin your search with a thorough risk assessment to determine how much coverage you really need. Be sure to include all the groups within your organization to make sure as many risks as possible are included.
It is important to remember that you cannot insure against loss of business due to damaged reputation in the aftermath of a breach. And those costs can be significant; according to this year’s Ponemon report, a breach can cost businesses up to an average 4% of customers, in some industries. It is better to avoid being breached in the first place rather than relying on insurance to cover damages.
Author Lysa Myers, ESET