Given the hullabaloo about data breaches these days, it may come as no surprise to learn that there's a correlation between major hacks and increased demand for Cyber Liability Insurance, according to a report by Fortune. After all, when you keep seeing headlines about major retailers being sued over their data breaches, you take notice.
And by Fortune's account, that's good news. The businesses that purchase Cyber Risk coverage are best prepared for hacks. That kind of foresight can cut down data breach costs considerably, according to Ponemon Institute's 2014 Cost of Data Breach Study [PDF], which found that when an organization has a formal incident response plan (which includes having Cyber Liability Insurance) in place prior to an attack, the average cost of the data breach was reduced by $17 per record. That may not seem like much, but when you consider that each breached record comes with a $201 price tag, the savings add up.
So the good news is that businesses are learning from the data mistakes others have made, and with that knowledge, they're arming themselves with the appropriate insurance protection:
- Last year, the insurance industry took in $2.5 billion in premiums for data breach policies.
- About 90 percent of Cyber Risk Insurance is being purchased by American businesses.
But wait, didn't that Advisen report recently show that 97 percent of small businesses don't have Cyber Liability coverage? (Read more about that here: "Analysis Shows Less than 3% of Small Businesses Have Cyber Liability Insurance.") Although we're ahead of the curve on the international scale (about 25 percent of US companies that generate $1 billion or more in revenue have cyber liability coverage), American businesses on the whole still having some catching up to do.
Let's learn why no business is safe from the high cost of data breaches unless it has adequate Cyber Liability coverage.
Data Breaches: The Equal Opportunity Disaster
It doesn't matter if you run a small business or a billion-dollar corporation. In the digital age, all's fair in data breaches and war. (Related reading: "Top 8 Data Breach Misconceptions.")
A big corporate company is a lucrative mark for hackers because of the vast amount of information it has. But then again, such a hit takes tons of planning, expert evasion of high-grade security barriers, and sometimes, insider knowledge.
A small business usually won't have the financial muscle to invest in top-level IT security, which means it's easier to attack. According to Forbes, this is why small businesses bear the brunt of 71 percent of all cyber attacks. To learn more, read the post, "'No Business Too Small' to Be Hacked, Says Security Expert."
How Cyber Liability Insurance Can Help
As we discussed earlier, having a plan to address cyber attacks can save your business an average of $17 per breached record. When you have Cyber Risk Insurance, your policy can insulate you from the high costs of responding to a breach. For example, your policy can help cover the cost of…
- Notifying affected parties. Most state laws require you to notify customers that their data has been compromised if the breach affects enough people. Each state has different laws.
- Offering credit-monitoring services. California's new data breach laws require 12 months of credit monitoring if you offer the service to breached parties. Again, each state has different laws governing how businesses should respond to data breaches.
- Negotiating with cyber extortionists. If a hacker demands a ransom from your ecommerce business lest they persist with their DDoS attack (where they essentially overwhelm your servers and force your business to a halt), your policy may cover negotiation costs.
- Fixing your security. When your small business suffers a data breach, it should be a learning experience. Chances are you'll need the experts to step in and determine how the breach happened and how you can prevent them from happening in the future.
The best part? Cyber Liability Insurance can be pretty affordable for very small-business owners, especially if you add the coverage to your Business Owner's Policy (which starts at about $500 per year). Rates inevitably vary depending on what your business does, but be sure to check out your options.