What is third-party cyber liability insurance?
Third-party cyber insurance provides liability coverage for businesses that are responsible for a client's online security. This includes protecting clients from cyberattacks and data breaches. If a client experiences a cybersecurity breach and sues, third-party cyber liability insurance can pay for the business's legal expenses.
What businesses need third-party cyber coverage?
Many businesses in the information technology field can benefit from the protection of third-party cyber coverage, such as businesses that install or service computer networks. Other IT businesses that can benefit from a third-party cyber insurance policy include:
Third-party cyber insurance is often included in a tech professional's errors and omissions insurance policy. It helps pay for lawsuits when a business – either because of its actions or lack of action – is sued over a data breach, various types of infringement, or privacy liabilities.
First-party vs. third-party cyber insurance
Most IT businesses will benefit more from third-party coverage, since it will protect them from client lawsuits. However, IT businesses that store sensitive data on their network, such as data analysts, may want to consider purchasing first-party coverage.
First-party cyber insurance
First-party cyber liability insurance addresses the financial fallout associated with cybersecurity breaches on a business's own network. For example, if an IT consultant's network is hacked and customer credit card numbers are stolen, first-party cyber coverage can pay for expenses such as:
- Notifying impacted customers
- Credit monitoring
- Public relations campaign for damage control
First-party coverage can also pay for expenses associated with cyber extortion. For example, if a ransomware attack is holding a cloud service provider's data hostage, the provider's first-party cyber policy can pay the ransom in order to (hopefully) get the data restored.
Third-party cyber insurance
Third-party coverage can cover expenses for businesses responsible for clients' online security and data. If an IT company's client experiences a ransomware attack or data breach and sues the IT business, third-party cyber insurance can pay the necessary legal expenses to defend the business in court.
Third-party cyber liability insurance in action
Let's say you're an IT consultant hired to help your client step up a security protocol. You recommend antivirus software that has a few recent well-documented weaknesses. When your client's network is compromised and customers' sensitive financial information is stolen, the client blames you and files a lawsuit.
At that point, your third-party cyber policy can help pay for:
- Lawyers' fees
- Settlements if you and the client settle out of court
- Judgments if you're found liable for the breach
- Other court costs such as witness fees, docket fees, etc.
Ransomware, phishing attacks, and data breaches are continuing to rise – impacting more businesses each year. If one of your clients is hacked and sues your business, the resulting legal bills could be devastating. Third-party cyber liability insurance helps ensure that your IT business can survive the financial aftereffects of cybercrime.
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