Every business operating online is susceptible to cyber attacks, but most owners don’t consider just how dire the consequences can be. The average cost of a data breach in 2021 was 4.24 million USD, and this number is likely to keep growing each year. Since many businesses don’t have the funds to cover the damages of a cyber attack, a single attack has the potential to shut down a thriving business. Cyber security insurance can prevent this from happening. Keep reading to find out what cyber insurance is and why your business needs it.
What are the benefits of having cyber insurance?
Cyber security insurance supports businesses financially if they get hit by a cyber attack. While it cannot prevent a cyber attack from happening, cyber insurance will help deal with the aftermath by covering all direct costs related to the attack. Considering how massive the costs can be, cyber insurance can save businesses that would otherwise be on the brink of bankruptcy.
What does cyber insurance cover?
Cyber insurance covers various costs that arise after a cyber attack, although the extent of damages that are covered varies from business to business. In general, most cyber insurance companies cover the following costs associated with a cyber attack:
Informing customers. If customer data is leaked, each customer must be informed immediately. This is not only a legal requirement in most jurisdictions, but it is also a way of saving as much of your brand’s reputation as possible. It takes a lot of resources to identify each victim of a data leak and personally contact them, so the costs can quickly add up.
Investigating. For a company to recover from a data breach, it’s crucial to get to the bottom of the cyber attack. A cyber insurance company will cover the costs of investigating the cause of the attack and figuring out how to protect the business in the future.
Ransomware fees. Even though paying off hackers is strongly discouraged by authorities, many cyber insurance companies will cover ransomware fees. (The average ransomware fee in 2021 was $570 000!)
Legal costs. If a cyber attack results in the loss or exposure of sensitive customer data like bank account information or health records, there might be some lawsuits. A cyber risk insurance company will cover all damages.
What does cyber insurance not cover?
Cyber security insurance generally covers all direct costs related to a cyber attack. However, there are many indirect costs that can present themselves even years in the future. Unfortunately, these costs are usually not covered by cyber security insurance:
Security system upgrades. Cyber insurance may cover the costs of finding the gap in your business security that made the attack possible. However, if you need any upgrades to your security systems, you will need to pay for them yourself.
Drop in future profits. Because of the reputational damage a cyber attack causes, a drop in future profits is very likely. A cyber security insurance company will not compensate for any such losses.
Decreased business value. If your company’s intellectual property or customer data gets stolen, your business value is bound to decrease. Cyber attack insurance will not help rebuild your reputation or bring your business back up to speed.
Should all companies have cyber insurance?
Cyber insurance may be a bit of a newbie in the insurance arena, but the industry grows rapidly each year. As technology has become the basis of nearly every modern business, cyber threats are as prevalent as ever. If your business has an online presence and handles sensitive data (like personal information on employees and/or customers), then this data is at risk.
So should all companies have cyber insurance? Well, unless a business is completely isolated from the internet and technology (which is usually not the case), cyber insurance is a must.
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How much does cyber insurance cost?
The cost of cyber liability insurance can range from about $600/year to $2500/year, but it depends on several factors, such as:
Desired cyber insurance coverage. The higher the desired coverage, the more expensive the cyber insurance plan.
Sensitivity of data. The more sensitive your business data (for example, if you store bank account details or medical information), the higher the risk and potential damage of a cyber attack.
Finances. The more money your business makes, the more likely it is to become a target of cybercrime.
Cybersecurity practices. If a business has strong cybersecurity (e.g. uses strong passwords, trains employees on cyber risks, and encrypts sensitive business data), then the likelihood of a successful cyber attack goes down, which in turn decreases the price of cyber liability insurance.
Before contacting a cyber insurance company about possible rates, consider each factor mentioned above. You don’t have much control over the sensitivity of your data or your finances, but you do have control over your business’s cybersecurity.
Make sure that you take as many cybersecurity precautions as possible, starting with reviewing your password security. The NordPass business password manager is a great way to protect your business assets and reduce the possible rate of cyber insurance by as much as possible
Cyber insurance is a must for every modern business, but it’s not a magic wand that can reverse all damage caused by a cyber attack. It may cover the direct costs that a company faces immediately after an attack, but you will still be left with reputational damage and a loss in future profits. That’s why it’s essential to adopt strong business cybersecurity practices, which will make cyber insurance cheaper and decrease the risk of a cyber attack in the first place.
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