Cybersecurity insurance has become unanimous to a hedging instrument that allows the firm to be prepared in an event where its security investments do not pay off, and a cyberattack causes severe damage to the firm. In such cases, if the firm can get compensated by its cybersecurity insurance provider, it can revert to its pre-attack business performance levels quickly.
The cyber insurance
cover acts as a recoupment mechanism that helps the firm take care of post-attack expenses such as:
- Paying for security upgrades.
- Legal expenses including the cost of hiring an expert and paying off the damages incurred by third-parties.
- Cost of hiring a PR firm to make the message public without impairing the firm’s brand equity.
- Any additional costs necessary to repair the firm’s technology infrastructure.
Given the fact that cyber security insurance has a comprehensive set of benefits, it is worth understanding the whole ripple of benefits can avail while trying to answer the question - why is cyber insurance important?
What is Cyber Insurance and What Does It Cover?
Answering why cyber insurance is important can include several layers of information right from addressing what is cyber insurance
. The most logical way to find out a cyber insurance policy’s value proposition is by enlisting the coverage it provides and the consequent benefits arising from it.
Here are types of liabilities included under standard cyber insurance coverage:
- First-Party Liability: It generally includes all the expenses the business has to incur in order to repair the damage caused to its assets. This liability can include:
- If the business had to transfer any money to get out of a Ransomware attack, the amount might be included in the policy’s reimbursements. The policy may also cover the cost of hiring specialists, experts, negotiators, investigators, and consultants who can help the firm get out of the situation with minimal damage.
- If the business loses any sensitive data or the customer data is made public, it might be liable to specific damages. A good cyber insurance policy will cover the expenses necessary to cover these liabilities.
- The firm will have to hire a team of financial experts who monitor the firm’s standing creditworthiness post the attack. Some policies can cover this expense as well.
- Hiring third-party contractors and vendors post the attack to rebuild a new system, and the firm's public image might also get covered by the cyber insurance policy.
- Third-Party Damage: This side covers critical aspects of why cyber insurance is important for businesses. After a cyberattack is executed on a company and its systems, the enterprise may get into a legal battle against several entities. It might be liable to pay dues for compromised intellectual property, breach of privacy, negligence of obligations, damage to public repute, and quantifiable damage to third-party businesses. Most comprehensive cybersecurity insurance plans will cover both the legal expenses required to go through these processes and the amount payable to third-parties.
Why Is Cyber Insurance Important?
As per data published by an industry-observer, the cost of an average cyber attack can be as high as $1.1 million or ₹8 crores. Such unforeseeable expenses can make a firm vulnerable to severe consequences, especially when it is operating in a recovering market. Beyond the exact financial details, various other benefits of cyber insurance
can help the firm in several ways:
- Ensures that the firm has updated security measures. Since the insurers will conduct a thorough analysis of the firm’s security systems, it will incentivize the firm to keep its IT infrastructure secure.
- Reduces the firm’s dependence on internal funds and cash savings for redeeming from cyberattacks.
- Decreases counterparty risk for the firm’s suppliers, partners, associates, and customers.
- Gives the employees a healthy working environment devoid of the worries of cyberattacks hampering their productivity.
- Provides the firm the ability to maintain its business continuity goals.
- Showcases the firm’s promptness and the management team’s ability to foresee, mitigate, and manage risks.
- Assures the firm’s financial, strategic, and trade lenders that the firm will not have liquidity or solvency issues emerging from a cyberattack and its consequent expenses.
- If the firm had to manage the entire post-attack cycle by itself, it would be forced to use the small degree of its remaining resources. With the remuneration of the cyber insurance policy, the firm can afford to hire experts for upgrading its security systems and handling brand equity damage, if any.
- Does a Cyber Insurance Plan Cover the Loss of Life or Health Risks Caused by a Cyberattack?
Among other exclusions, cyber insurance covers do not include any form of medical expenses a business is liable to incur. Such costs include the damages payable against the loss of life and health risks, even if they are attributable to a cyberattack acceptable under the policy.
- What are the Most Common Claims Made with Cyber Insurance Policies?
Some of the most common claims are made because of Ransomware, loss because of fund transfer fraud, and compromised sensitive data.