What is Cyber Insurance? The Ultimate Guide

Cyber Insurance: What is it?

A cyber insurance policy, also known as “cyber liability” coverage, is an insurance product that provides protection against damages incurred as a result of a data breach or other cyber attack pertaining to sensitive data stored online.

The goal of cyber liability coverage is to help mitigate the financial risk associated with a cyber attack. Businesses that purchase cyber insurance have an easier time recovering from the burdens associated with a security breach.

Who Needs It?

Computers play an integral role in the way business is conducted around the world. Most companies utilize digital systems to deliver services to customers and reach internal goals.

Due to the prominent role computers play in accomplishing daily tasks, many organizations have a contractual obligation to protect their clients’ data. This includes personal identifying information (PII) such as names, addresses, credit card information and more. Due to the sensitive nature of this information, hackers will do whatever it takes to exploit this data with total disregard for the company responsible for its storage.

If an organization collects or stores personal information in any type of digital system, it may have a regulatory responsibility to protect any data that could be considered confidential.

Cyber Insurance Provides a Safety Net For Companies

Even the most proactive companies can fall prey to online hackers and malicious software. No matter how many barriers are in place, unapproved access and use of sensitive information is always a possibility. Many attempts to breach data systems seem innocent – for example, they may appear as seemingly innocent emails that ask for personal information. This approach is known as phishing, and it exploits human behavior to gain unauthorized access to confidential data. Those targeted often do not realize they are revealing personal information to malicious players until it’s too late.

Despite facing state-of-the-art security protocols, hackers will always find a way around protective measures such as two-factor authentication and password character requirements.

The costs associated with a data breach are nothing to sneeze at. Once an attack has started, the company on the receiving end must not only defend itself against the invader – it must also take measures to protect its customers and notify them of any actions which could put their information at risk.

From there, the negative implications of a cyber attack can be surprising, unpleasant and widespread. From operational disruptions to litigious fines, the overall impact of a single data breach can wreak havoc on a company. By carrying cyber coverage, a company can reduce the financial risk of an incident. As a result, companies that have cyber protection find it easier to recover from a cyber attack.

What Does Cyber Insurance Cover?

In order to keep up with the pace of digital innovation, cyber insurance covers a variety of events. Like the companies it covers, there is no one-size-fits-all solution when it comes to cyber protection. Some items that may be covered by a cyber policy include:

• Ransomware attacks
• Malware attacks
• Data breaches
• Digital fraud
• Costs related to operational downtime
• Loss of funds
• Loss, location and recreation of data

Related: In the event that hackers access and exploit personal data such as credit card information, license numbers, or addresses, cyber liability coverage may cover:

• Reputation Management
• Legal fees
• Cyber detective work
• Investigations related to calculation of digital impact
• Monitoring of Credit

Largest Events Covered by Cyber Security Insurance

In general, the most problematic disruptions in the cyber world stem from malware, ransomware attacks and business downtime. Below is an overview of these events and the ways in which companies are typically affected.

Malware

Malware is any malicious program installed on a victim’s system by an attacker. Once installed, bad actors gain access to critical information, enabling them to set up digital back doors that allow for re-entry into the system. Malware attacks cause many headaches within companies. During an attack, a hacker may plant other software that will slow down, freeze, or otherwise damage the victim’s systems. In certain cases, malware renders computer equipment inoperable.

Malware can appear in many different forms. In some cases, attackers will try to coerce unassuming employees into downloading malicious software. Doing this provides bad actors with the ability to block primary computer functions or download sensitive data, often causing irreversible damage.

Ransomware

Ransomware is a type of malware that blocks access to programs unless a ransom is paid. During a ransomware attack, hackers infiltrate a company’s computer system and gain access to intellectual property, personally identifying information, health information or other sensitive data. This information is then encrypted by the attacker, causing the business to lose access unless the instigators are paid a hefty ransom.

Ransom payments can vary in amount based on the size of the targeted company and the ambitions of the attacker. During the Colonial Pipeline attack, hackers were paid $4.5 million dollars in bitcoin by the FBI. Roughly $2.3 million was later recovered. While the use of digital currency was novel at the time, ransomware payments are demanded in all forms of currency and may even involve the use of gift cards.

Business Interruption

No matter how a cyber crime is conducted, the affected company almost always experiences operational downtime. While this might seem like an inconvenience at first, the consequences tend to spread rapidly throughout the company. Given the strong ties that exist between departments in many organizations, one disconnected computer system can trigger the following costs:

• Costs to identify cause of disruption
• Network costs
• Device costs
• Cost of people
• Lost opportunity cost

These items add up quickly, leading to a loss of revenue. Without insurance, there is no conventional method to ensure that these costs can be recovered. However, a cyber policy that covers business interruption would indemnify companies for lost revenue during a cyber attack.

How Much Does Cyber Insurance Cost?

Due to the open-ended nature of cyber threats, it is best to choose cyber insurance based on the type of coverage needed rather than on price alone. Cyber security costs rely heavily on a company’s ability to guard itself against foreign threats and disincentive attacks. Cyber premiums are determined by a number of factors including an insured’s risk profile, revenue and business category.

Like any price index, cyber insurance prices tend to adjust over time. Those curious about the cost of cyber insurance can use a tool such as Limit’s Cyber Price Index to determine current prices and get a sense of how prices differ by industry, revenue and limit amount as well as market trends.

Limit AI is here to revolutionize your workflow.

Limit has built the State of the Art AI for insurance. Limit AI will summarize and compare your quotes, run your surplus lines taxes and fee calculations, identify coverage deficiencies, and do what you need to get your job done. Limit AI is extremely well-versed in all lines of P&C and highly skilled at analyzing your policies & quotes.

Our AI Assistant is built on Limit’s years of expertise as a commercial insurance wholesaler with hands on experience in all lines of P&C. Limit AI answers questions, drafts emails, and compares quotes & policies with substantially more rigor and attention to nuance than any other competitive AI product today.

Ready to get started? Join the waitlist by visiting limit.com/ai or email us at contact@limit.com.