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Cyber liability insurance
Cyber liability insurance
Cyber liability insurance, also called cyber security insurance, protects small businesses from the high costs of a data breach or malicious software attack. It covers expenses such as customer notification, credit monitoring, legal fees, and fines.
Why do small businesses need cyber insurance?
Cyberattacks and data breaches are expensive and increasingly common. Small businesses often have weak cybersecurity, which makes them an attractive target.
A cyberattack isn't just an inconvenience – it can put you out of business. In fact, 60% of small businesses go under within six months of a cyberattack.
Cyber insurance coverage helps your business recover from financial losses caused by cyberattacks and data breaches. It can pay for credit monitoring, attorney's fees, fines, and other costly expenses.
Businesses that purchase cyber insurance typically handle:
- Credit card or bank account information
- Medical information
- Social Security or driver's license numbers
- Customer names, email addresses, phone numbers, and addresses
- Cybersecurity for other businesses
What does cyber liability insurance cover?
Cyber security insurance covers the costs associated with data breaches and cyberattacks, including the cost of recovering important data and hiring legal representation.
There are two types of cyber liability insurance coverage: first-party coverage and third-party coverage.
Most businesses need first-party cyber liability insurance to defend against their own cyber risks, especially if they handle personally identifiable information (PII) for customers.
Companies that are responsible for their clients' cybersecurity would need third-party cyber liability insurance to provide legal protection from client lawsuits.
What is first-party cyber liability insurance coverage?
First-party cyber liability insurance, sometimes called data breach insurance, covers costs related to a data breach or cyberattack that directly impacts your business.
This coverage can often be added to your general liability insurance. It’s recommended for professionals who collect sensitive information, such as customer credit card information.
Specifically, first-party cyber liability insurance can help cover:
Cyber ransom payments
If a hacker steals your private information about your company or its employees and holds them for ransom, cyber liability insurance will help with payments to meet cyber extortion demands.
Business interruption expenses
When normal operations need to be halted to handle a cyber incident response, cyber liability insurance can help cover business interruption expenses, such as the cost of hiring additional staff or renting equipment. This includes purchasing third-party services, such as hiring a public relations or crisis management team.
Breach response costs
State laws will typically require a response when a business is impacted by a data breach. Cyber insurance helps cover costs associated with hiring a digital forensic expert to investigate the breach, customer notifications, consumer credit and fraud monitoring services, as well as Payment Card Industry (PCI) compliance fines.
What is third-party cyber insurance coverage?
Third-party coverage offers liability protection and helps cover the cost of a lawsuit when a client sues your company for failing to prevent a breach or cyberattack at their company. This insurance is recommended for technology businesses that make software recommendations to clients or are responsible for their network security.
Third-party cyber liability coverage can be bundled with your errors and omissions policy into what is known as technology errors and omissions insurance, or tech E&O.
Specifically, third-party cyber liability insurance can help cover:
Legal defense costs
If a client sues your business for failing to prevent a data breach at their business, cyber liability insurance could help cover attorney's fees and other legal costs for your defense in court.
Settlements
If your business faces a lawsuit from a client who experiences a data breach, you and the client could decide to settle out of court with settlements that would satisfy the damages they experienced.
Court-ordered judgments
If a client accuses you of being responsible for a data breach at their business and sues your company, you may be legally obligated to pay for damages from any judgments in the lawsuit.
How to protect your business from cyberattacks
View video transcript.
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Cyberattacks are expensive and can take a long time to resolve. A study by IBM and the Ponemon Institute put the average cost of a data breach at $3.86 million. The average time to identify and contain a breach was 280 days.
A cyber liability insurance policy can help pay for:
- Mandatory notification of affected parties
- Investigating and fixing security flaws
- Several years of credit monitoring services for affected customers
- Loss of business opportunities
Complete our easy online insurance application to get free cyber liability insurance quotes that meet the needs of your small business.
How much does cyber liability insurance cost?
Insureon customers pay an average premium of $145 per month for cyber insurance. The cost of cyber liability insurance is based on several factors including:
- Amount of sensitive data handled
- Your industry
- Coverage limits
- Number of employees
All of these factors will be instrumental in determining how much cyber liability insurance your small business needs.
Who needs cyber insurance?
Cyber liability insurance, sometimes called cyber security insurance, is a key policy for any companies that operate in cybersecurity, work in a cloud environment, or handle sensitive customer personal information, such as credit card numbers.
While any business can fall victim to a data breach or cyberattack, hackers will often target a few specific industries, including:
IT professionals
Cyber liability insurance for technology companies provides coverage for legal costs when a client sues for failure to prevent a data breach or cyberattack at their business.
For example, if an IT consultant leaves data for a small healthcare company unsecured on Amazon Web Services, and a cyberattack exposes hundreds of Social Security numbers and email addresses belonging to the company's customers, the healthcare company could blame the consultant and file a lawsuit.
The consultant's cyber liability policy helps pay for legal defense costs and the eventual settlement.
Retailers
Cyber liability insurance for retail businesses helps provide coverage to recover after a cyberattack exposed your customers' personal data. It's recommended for any shop that handles credit card numbers or other sensitive information.
For example, an employee at your retail store accidentally opens an email containing a malicious computer virus. The virus encrypts data crucial to your business’s operations and demands a ransom for its retrieval.
Your cyber security insurance reimburses you for the ransom and for the cost of hiring someone to look into the source of the attack.
Healthcare organizations
Cyber liability insurance for healthcare organizations can help cover legal costs and provide essential resources, such as notifying clients or patients that their data was exposed, credit monitoring services for affected clients, and PR campaigns to restore reputation.
For example, if a doctor's office suffered a ransomware attack that affected up to 100,000 patients, it could force them to lock their patient billing and scheduling software in order to investigate the breach and prevent further damage.
Cyber liability insurance would cover business interruption expenses while the facility works to re-boot and upgrade security on their system.
Financial service providers
Cyber liability insurance for financial professionals can cover legal fees and expenses while also providing vital resources to help recovery if they experience a cyberattack or data breach.
For example, if a tax preparer asks a client to upload a document with sensitive data online and that client data is stolen or compromised, the affected client might decide to sue the tax preparer to recoup expenses.
Cyber liability insurance can shield your business from legal expenses related to a data breach by paying for court costs and attorney fees.
Real estate professionals
Cyber liability insurance for real estate professionals can cover legal expenses while also providing resources to help aid affected customers in response to a data breach.
For example, if a real estate agent asks a client to provide their social security number or credit card number for a mortgage document and that information is exposed during a cyberattack, the client might decide to sue the agent for damages from the breach.
Cyber insurance can provide coverage for attorney fees, PR campaigns, as well as client notification and credit monitoring services.
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Top professions that need cyber insurance
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What does cyber liability insurance not cover?
While cyber liability insurance covers many aspects related to data being compromised by cyber threats, it does have a number of coverage exclusions. For example, it only covers data lost from a targeted cyberattack. It does not cover data lost from a power outage.
Other exclusions from cyber liability insurance coverage include:
Mistakes and oversights
Professional liability insurance, also called errors and omissions insurance (E&O), covers the costs of lawsuits over mistakes or oversights. Professional liability insurance also covers the costs of lawsuits over professional negligence.
Data loss caused by accidental damage
While a cyber insurance policy covers data lost in a software attack, it does not insure data lost from accidental physical damage to a network or storage device.
Electronic data liability coverage expands your property damage coverage in a business owner's policy (BOP) to include a loss of data caused by accidental damage to a customer’s computer, hard drive, or other data storage equipment.
Data loss from natural occurrences
If you experience a data loss during a power surge, fire, or natural disaster, you would need electronic data processing (EDP) insurance. This coverage is typically bundled in a business owner's policy (BOP), and provides protection for data loss in your electronic data processing equipment, such as computers and backup systems.
Other common questions about cyber insurance
How do cyberattacks happen?
Cyberattacks can happen when the network security at a business is not up to date, or the employees lack the training or knowledge to recognize phishing attempts, ransomware, and other cyber hacking red flags.
According to a recent report, 82% of ransomware attacks target small businesses. Many ransomware gangs are attempting to extort companies that are lucrative enough to pay a heftier ransom amount, but also small enough in size to make hacking attempts easier, as well as keep any media and law enforcement attention low during the fallout.
When a data breach or cyberattack incident occurs at a business, cyber liability insurance can help defray costs to the business and help a company to survive the breach.
Learn more about protecting your business from ransomware attacks and other threats.
What are some examples of data breaches and cyberattacks?
Cybercrime is a multibillion-dollar industry. Security firms constantly struggle to stay one step ahead of hackers looking for lucrative victims. Even with careful security measures in place, catastrophic data breaches can, and do, occur.
Phishing emails, malware, security breaches, network security issues, and computer system breakdowns are just a few examples of the kinds of cyber risks that could cause serious liability or losses.
This could impact a financial planning business that stores bank account information, or even a gaming app developer that collects user profile information.
Learn more about what to do after a data breach.
Where can I learn more about cyber liability insurance?
If you want to learn more about this policy, you can find additional answers in our frequently asked questions about cyber liability insurance.
If there are any additional questions you have about coverage, you can also contact an Insureon agent.
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Updated: May 18, 2023