Why Cyber Liability Insurance Claims Cost So Much
In today's world, small businesses may handle terabytes' worth of customer records, work projects, and sensitive data such as Social Security numbers. When a business suffers a data breach, it can be hard to determine what was stolen and who was affected. Thousands of passwords, account numbers, and credit card numbers might be swiped in a single event. This is one reason why Cyber Liability Insurance claims often run into the hundreds of thousands of dollars.
No business, no matter its size, is invincible against data breaches. But if you run a small business, the cost of a data breach can be especially devastating. Let’s see why those expenses add up fast.
Data Breaches by the Numbers
Financial services company First Data reports that data breaches cost small businesses an average of $36,000 to $50,000 in recovery expenses. If you add medium-sized businesses into the mix, the average cost rises to $86,500, according to a recent survey by computer software company Kaspersky Lab.
Once a data breach is discovered, a chain reaction of events is set into motion – each typically with a corresponding cost. For example, 48 states have passed laws requiring companies to notify anyone affected by a data breach involving personally identifiable information. Contacting all of the affected parties can easily cost thousands of dollars, depending on how many people were impacted by the breach.
In fact, the 2017 Ponemon Institute Cost of a Data Breach Study reports that the average per-record cost is $141 for data breaches that occur in the United States.
According to First Data's report, here’s the breakdown for additional data breach costs:
- Forensic examinations typically cost $20,000 to $50,000.
- PCI compliance fines can range from $5,000 to $50,000.
- Replacement credit cards cost roughly $3 to $10 per card.
Businesses that suffer data breaches often also have to pay for…
- Credit monitoring services to protect customers against fraud.
- Liability for fraudulent charges that occurred after the breach.
- Public relations outreach to rebuild the business's reputation.
- Additional labor to help with these and other recovery activities.
Most small-business owners often aren’t aware of the steps they'll need to take if they suffer a data breach. If they live in a state with strict data breach notification laws, delays caused by confusion can lead to fines and more headaches.
In short, the value of a Cyber Liability Insurance policy can’t be overstated. It helps pay for cleanup costs so you have one less thing to worry about. Let’s look at how a claim works.
How a Cyber Liability Claim Works
Say a small business has Cyber Liability Insurance and wants to file a data breach claim. This claim is the formal request to their insurance company asking for a specified payment based on the terms of the insurance policy.
Typically, the business may file a claim if it experiences the following scenarios covered under its policy:
- A data breach, where an outside party gains access to sensitive information.
- Loss of a digital device or devices that hold sensitive data, possibly due to theft.
- Ransom of its data or network caused by outside parties.
- Attacks by hackers or malware.
- A lawsuit by a third party alleging a data breach caused by the business's actions or negligence.
The insurance company that provides the Cyber Liability Insurance policy will have a representative investigate the claim and determine what is reasonable compensation for the insured. This compensation may cover…
- Damage repair costs.
- Court-mandated settlements.
- Business interruption expenses.
- Other costs the policy can address.
The insurance company representative may adjust the amount of compensation, depending on the circumstances of the claim and the type of damage done. Keep in mind, too, that Cyber Liability policies vary significantly from one provider to another. Talk with your insurance agent to understand what your policy covers and excludes.
How to Address Cyber Risk
If, like many small-business owners, you rely on other contractors or employees to run your websites or IT networks, you may not be familiar with how your data is exposed and how much risk that exposure presents. Talk with your IT specialists (whether in-house or contractors) to better understand your risks and how you can mitigate them.
Additionally, make sure your business has Cyber Liability Insurance for when the worst happens. You can purchase it as a standalone policy or add it to your Business Owner's Policy. With the increasing amount of data that's copied and stored every day, it's only a matter of time until a security measure fails and you face a costly data breach. Cyber Liability Insurance can help cover those costs and turn what might have been a financial and reputational disaster into a minor inconvenience.