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What is cyber insurance?

There isn’t a business operating today that doesn’t utilize data and technology in one way or another. Whether it’s your bank account info, personal information of your customers and employees or job details, you probably store something online or on a machine connected to the internet. That means that you are at risk for a hack or data breach. No one is 100% secure.

 

Every company that stores sensitive or business critical information online should take steps to protect themselves and limit their risk. Cyber insurance is a useful tool in achieving this goal.

 

Cyber insurance protects businesses from internet-based risks, and more generally from risks relating to information technology infrastructure and activities. It’s intended to limit liability and property loss from a cyber attack. Such cyber attacks may be a hack, data breach or malware.

What does it cover?

Cyber liability insurance covers two big categories of financial loss from data breaches, hacks, viruses, etc. One is third-party liability and the other is first-party coverage.

 

Third-party liability coverage protects you in the event of claims or suit by a customer, vendor, partner or other party as a result of a breach of their security or privacy. One of the biggest portions of cyber security insurance coverage is legal fees and expenses.

 

Such claims may be network security claims, which hold the company responsible for failing to defend their system against malicious acts. Claims could also be media communications liability which covers claims alleging defamation, invasion/violation of privacy, or other wrongful media communication acts associated with breached electronic communications. Finally, liability coverage includes protection against penalties levied by any regulatory agency in connection with the breach.

 

First-party cyber liability insurance covers the direct financial losses that your business may suffer as a result of the breach. A major part of this coverage can be the cyber extortion threat, which is the holding hostage of your system or data by malware under the demand of a ransom; cyber risk insurance provides reimbursement for payments made to end the threat. Another significant portion is business interruption insurance, which compensates your company for profits lost during the recovery period.

 

This coverage may also include the costs of formal notification to clients, partners, etc. of the breach; restoration of lost or compromised data and personal information security; bank fees for card replacement or account recovery; and repairs and restoration of computer systems.

What’s not covered?

Like any insurance policy, not everything is covered by cyber insurance. Typically, things excluded from the policy include:

 

  • Damage to your business’s reputation as a result of the breach.
  • Patent, copyright or trademark infringement. A highly comprehensive policy might cover the legal costs associated with such claim, but a simpler policy most often will not.
  • Vicarious liability, when your business passes data to a third-party who then suffers the breach. These claims are typically denied.
  • Loss of your business’s intellectual property.
  • Failure in security measures. If the insurer investigates a claim and believes that there were not proper cyber security measures in place, they will most likely deny the claim.

 

While this is far from a complete list, these are some common exclusions. Always check your policy to see what is covered and what is excluded.

Reducing the Risks of Cyber Liability Claims

Cyber liability insurance should be the last line of defense and only a fall back in the worst case scenario of a successful hack, malware or data breach. You would be well advised to work to protect your business in every way possible and avoid needing to make a cyber liability claim at all.

 

Here are some ideas for reducing your cyber security vulnerability:

 

  • Ensure that all your systems have updated antivirus software.
  • Use network security software and firewalls and consider using a virtual private network (VPN).
  • Always back up company data and sensitive information on an offsite or cloud server.
  • Train employees on the importance of keeping customer and partner data secure and limit access to said information.
  • Hire or consult with an IT security professional to audit and maintain your cyber security system.

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