The Advisen numbers are in, and they are pretty surprising: less than 3 percent of small businesses have Cyber Liability coverage. Or, to put a grimmer spin on it: over 97 percent of small businesses don't have coverage to deal with a data breach. Given today's growing cyber threats and the fact that many businesses see Cyber Risk Insurance as an important part of their liability protection, that number seems to be out of step with reality.
So what's the deal? If data breaches are as common and as pricey as the headlines and research say, why aren't small-business owners clamoring to get coverage? Why isn't the Cyber Liability market saturated with policyholders who know better than to let a breach break their banks?
Let's get some answers.
Top 3 Reasons Small-Business Owners Don't Have Cyber Risk Insurance
These are perhaps the most relevant explanations on why small businesses are slow to move on cyber coverage:
- Cyber Liability Insurance is a relatively new product. A lot of carriers are still revising policies to account for the changing landscape of data security. And more to the point, a lot of carriers may not even offer Cyber Liability products yet.
- Some people don't know Data Breach Insurance is a thing. Whereas policies like General Liability Insurance and Workers' Compensation Insurance have been around for centuries (literally), Cyber Liability Insurance is a recent policy created to help business owners address the costly aftermath of data breaches, which can be substantial. In fact, the average cost of a data breach for small businesses is $8,699.48, according to the National Small Business Association's 2013 Small Business Technology Survey.
- Many small-business owners gravely underestimate their cyber liability risk. There are still plenty of data breach misconceptions, chief among them that it's only big businesses that are vulnerable to cyber attacks. However, cyber crooks tend to target small businesses because they have much less IT security in place than their big-box counterparts. For more on that, read "'No Business Too Small' to Be Hacked, Says Security Expert."
So now that you have an idea about why Cyber Liability Insurance is underutilized, let's explore what this policy can do.
Cyber Liability Insurance: A Small Business's Knight in Shining Armor?
Ok, so you don't have to be a damsel in distress to draw on this coverage. But once a cyber thief storms your virtual castle walls, you'll breathe a serious sigh of relief when you realize your Cyber Risk policy can cover the cost of…
- Notifying breached parties. Say your small retail business stores credit card information, customer names, and addresses on your devices. When your data is stolen, most state laws require that you notify affected parties about the breach. You might not think this cost is significant, but it takes a lot of extra time to draw up a list of names, check their contact information, and follow up that they received your notice.
- Offering credit-monitoring services. One way to restore your customers' trust in your business is to offer to pay for credit monitoring to reduce the chance of fraud and stolen identities. If the breach affects enough people, your state laws may require you to offer this service.
- Negotiating with cyber extortionists. Say a hacker holds your data hostage and threatens to delete it if you don't pay a ransom. Cyber Liability Insurance can help pay for negotiation costs.
- Repairing your IT security. If you don't want a breach to happen again, you have to figure out how it happened in the first place. Good thing your policy can cover these costs because when you call in the experts, the fees add up.
Also worth noting: when a small business's bank account is hacked, the average loss is about $6,927.50. Unlike customer accounts, business accounts are not protected if they’re hacked. In other words: the bank has no liability to return any money stolen in a cyber attack. So imagine having to pay for breach notification, credit monitoring, and security repair costs out of pocket in addition to losing over $6k. More than likely, the hit would leave you flat broke.
So why not give yourself a financial safety net? For most very small businesses, Cyber Liability Insurance can be bundled with a Business Owner's Policy for about $500 per year (though your rates may vary depending on your industry and the services your business offers).