Cyber Liability Insurance Is Now A Priority For Securing Digital Enterprises
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Cyber liability insurance is becoming a critical component of an extensive risk management strategy. With enterprises storing more data and establishing more endpoints now than ever before, this type of coverage is needed.
Security must be thoroughly examined during the planning stages of digital transformation. New technological solutions —including cloud computing, artificial intelligence (AI), and the Internet of Things (IoT) — all carry increased security vulnerabilities.
Enterprises need every tool at their disposal to cover against cyber security threats. Although there are solutions and policies that can be leveraged to prohibit some attacks, organizations should strongly consider cyber liability insurance to supplement these security efforts.
What Is Cyber Liability Insurance?
According to Investopedia, a cyber liability insurance policy provides enterprises with protection from losses that result from a data breach. It gives an organization some peace of mind to know that if its networks are hacked and critical data gets compromised, its financial losses will be covered.
This type of insurance is still relatively new in the enterprise. By 2020, the market for this insurance will be worth of $7.5 billion, and 80% of insurers view this as a major area of growth.
Enterprises are collecting vast amounts of information, including internal data (such as private business details) and external data (such as customers’ personal information). Organizations need some type of financial coverage to protect against potential data breaches and leaks.
“Cyber crime has evolved rapidly and those who partake in this illicit activity are becoming increasingly proficient,” said Jon Bartholomew, consultant with Swarts, Manning and Associates. “Even large publicly traded enterprises that invest millions of dollars in cyber security have been successfully targeted and breached recently.”
Why Should Enterprises Get This Coverage?
This type of insurance can be beneficial because of the massive finance costs incurred during a cyber hack. When data is breached, businesses must notify users affected by it, which can quickly add up in cost. If customers were impacted, the company’s brand and reputation could diminish rapidly. There are also other expenses from a data breach, including examination costs and unexpected IT resources being drained.
“Cyber liability insurance is imperative for organizations of all sizes to protect themselves from the financial and reputational burden that could result from cyber exposures. With the significant increase in data breaches in 2018, it would be a responsible decision for enterprises to get proper coverage in 2019,” said Eric O’Neill, a producer at Graham Company, one of the country’s largest insurance brokers. “Relying on general liability policies alone is simply not enough and will leave organizations vulnerable.”
If an enterprise has cyber liability insurance, a potential financial catastrophe can be averted. One study reported that nearly 90% of organizations said that cyber liability insurance fully covered their security incidents.
What Happens When You Lack Cyber Liability Insurance?
Operating without this insurance leaves an enterprise vulnerable to a tremendous financial loss. Although the cost of a cyber insurance policy varies by organization, some experts recommend that larger companies purchase at least $1 million of it. This might seem expensive, but when you consider that the average cost of a corporate data breach is nearly $4 million, it is worth having.
“Without adequate cyber liability insurance in place, an enterprise would need to cover the costs of a data breach on their own. Many businesses do not have sufficient capital to cover this exposure,” said Bartholomew. “With depleted capital and a potential reduction of customers, a data breach may cause significant financial harm to an enterprise for quite some time.”
Does It Replace Traditional Security Methods?
Cyber liability insurance does not replace traditional enterprise security strategies. It is still imperative that enterprises leverage security software and maintain strong security policies that limit data leaks. However, as an extra layer of security, this form of insurance can prohibit potential financial consequences from a breach. Given the increased frequency of cyber attacks, it makes sense to receive this coverage.
“Many cyber liability insurance applications will specifically request the enterprise list their current security software, encryption protocols, number of stored records, and other details regarding the overall integrity of their cyber security,” said Bartholomew. “Properly securing sensitive customer information should be a top priority for any enterprise handling such records. Properly insuring the entity based on the number of those records and exposures associated therewith should be given equal consideration.”