Why Cyber Insurance May Be Worth it to SMBs

Cyber insurance is a hot topic because cyber attacks continue to be on a steep incline. Small to mid-sized business (SMB) leaders have many questions such as:  

  • What is cyber insurance exactly?
  • What does it cover? 
  • How much does it cost?
  • Is it worth it?
  • Who needs cyber insurance?

Let’s review. 

What is Cybersecurity Insurance?

Cyber insurance is a coverage plan offered by most major insurance companies. It protects your business’s digital assets in the event of a data breach or cybersecurity threat.  

An insurance provider may also offer tools and resources to prepare you for a breach and reduce your cyber risk.

What Does Cybersecurity Insurance Cover?

A cyber insurance policy covers businesses in any industry after a cyber attack. The coverage includes costs tied to the digital attack. This may include: 

  • Downtime costs
  • Data recovery costs 
  • Costs of notifying customers 
  • And more 

Most insurance providers offer the following cyber insurance coverage:

Legal 

This includes legal counsel and defense related to a breach. 

Cyber Extortion 

Cyber extortion is when a cybercriminal prevents access to data and/or devices. Or threatens to release sensitive personal data, in return for a ransom (i.e., a ransomware attack).   

This coverage includes expenses associated with a ransom charged during an attack.

Betterment 

Expenses related to improving your digital assets after a breach. Both hardware and software items.

Crisis Management

The cost of limiting a breach’s damage to your company’s reputation. This includes costs associated with notifying affected customers.

Forensic Investigations 

 Covers the costs of breach investigation to determine the source, type, and scope.

Business Disruption

Financial losses related to the disruption of standard operations because of a breach. Both income and expenses.

Regulatory Defense Fines and Expenses 

Financial coverage for regulatory or compliance fines or sanctions.

What Does Cybersecurity Insurance Cover?

It’s important to know what is often not covered by cyber insurance. That way your expectations are in alignment. You can expect that many policies will not cover:  

  • Future profits
  • The cost associated with improving cybersecurity after an attack
  • Loss of value linked to the theft of intellectual property
  • Loss suffered from a breach due to war, invasion, or terrorism
  • Damage to the company’s reputation or brand (Learn how to regain trust here.)

How Much Does Cybersecurity Insurance Cost?

As you might expect, this is going to depend on your organization and your needs. 

Premiums depend on:  

  • The strength of your cybersecurity measures
  • The size of your business
  • The coverage you want
  • Your industry
  • And more 

AdvisorSmith, a company who provides research and tools for businesses, reported the average cost of insurance in 2021 was $1,589 per year (or $132/month).

But expect the cost to be higher. Insurance premiums increased an average of 28% in the first quarter of 2022. This is due to the increase in the cost of breaches, ransomware, and other attacks.

Cyber Liability Insurance vs Data Breach Insurance 

Cyber liability insurance provides you with the strongest protection. This is because it offers first-party (e.g., cost to repair damaged property, lost revenue, investigation costs, etc.) and third-party coverage (e.g., legal fees and/or compliance fines related to the attack). Data breach insurance only provides first-party protection.

Why Cyber Insurance May Be Worth it to Your SMB

Today’s modern business is reliant on cloud technology. This makes cybersecurity threats and breaches unavoidable. Here are some key facts:

  • 43% of cyberattacks target small businesses (CISA, 2021).
  • The average cost of a data breach to SMBs range from $120K to $1.24 million and cost more than enterprises (relative to their size) (Business.com, 2022).
  • 60% of SMBs go out of business within six months of a cyber attack (Verizon, 2022).

Cyber liability insurance can strengthen your cybersecurity plan when combined with basic cybersecurity measures (e.g., MFA, endpoint protection, updated and patched systems, etc.). Your cybersecurity can be managed in-house or through a managed service provider. (Discover how a managed service provider can help your business succeed).

It is not meant to be used in place of cybersecurity best practices. It simply offers you an extra layer of protection that could make recovery easier.

A good policy covers many expenses your SMB will incur after an incident. Small businesses can get detailed coverage plans. Plus, many insurance providers offer industry-specific coverage to ensure your regulatory needs are met.

Be sure you understand what is, and what is not, covered by any policy you are considering.

Extra Protection, Greater Peace of Mind

So, who needs cyber insurance? Short answer, cyber insurance may not be right for everyone (or their wallet). However, it is an option that can give you extra protection in a fast-growing and volatile digital landscape.

If your SMB does not have a cybersecurity foundation yet, then you should implement it before considering any cyber insurance. Learn the 10 foundational cybersecurity elements your business should have in place.

On the other hand, if you already have cybersecurity measures in place, then cyber insurance may be the risk-management strategy you’re looking for.

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