8 Small Business Cyber Liability Insurance Coverage

Cyber liability insurance covers a business’s expenses related to data breaches and other cyber events. It also protects a company from lawsuits filed after a cyber attack occurs. All sizes of businesses are vulnerable to cyberattacks. Hackers can steal confidential information or disrupt operations and drain financial accounts. Purchasing cyber liability insurance is an important step for any business. However, it is important to make sure that a policy will provide value to the business. This includes evaluating the annualized loss expectancy (ALE) of the cyber insurance policy. 1. Coverage for Data Breach Incidents Cyber insurance is a good way to protect your business and your finances in the event of a data breach. It can cover ransom payments, data recovery costs, and customer notification, among other expenses. Premiums for these policies vary widely based on several factors, including the sophistication of your company's technology and its ability to avoid a data breach. Additionally, the size and annual revenue of your business are other considerations. Depending on the policy, cyber liability coverage may also include a deductible. The deductible is the amount of money that you have to pay before the policy kicks in and starts paying. The deductible is an important consideration because it can affect the premium you pay for the coverage. A higher deductible can help you secure a lower premium. A data breach can cost a business millions of dollars, especially when it affects a large number of people's personal information. This can have a major impact on your reputation, damage your ability to do business, and lead to lawsuits from affected individuals. 2. Coverage for Business Interruption Losses In the event of a cyber event that causes an interruption in business, a cyber liability insurance policy can provide coverage for losses that arise as a result. These include revenue that an insured would have made had the business been open during a covered loss, normal operating expenses, and lost income taxes. Coverage for business interruption loss claims can be complicated and require an effective presentation of the damage and its causes, along with detailed documentation to support a claim submission. It is important to work closely with IT, risk management, and legal departments in this process. For example, if a business relies on cloud space or a processing utility for its operations, Contingent Business Interruption (CBI) loss coverage can cover lost income and operational costs when a service provider is unavailable to the insured because of a cyber event. Business interruption coverage is an important component of any cyber liability insurance policy, and insurers should ensure that it provides adequate protection to meet their insureds’ needs. Insureds should also carefully review their cyber insurance policy language to determine whether or not CBI coverage applies to them. 3. Coverage for Loss of Revenue Cyber liability insurance is a relatively new type of policy that helps small businesses protect themselves against the damage that data breaches and cyber attacks can do. It can cover the costs of data restoration, credit monitoring, and the reimbursement of lost income and payroll that a company might suffer following a data breach. The coverage is often included in a small business's commercial property insurance. It's similar to coverage that would be provided under a general liability insurance policy. Depending on your insurance agent, it may also cover the fees you'll need to pay for regulatory fines and lawsuits related to a cyberattack. It can also provide the funds for your legal costs if you're sued by a customer over a data breach. This type of coverage is especially important for businesses that are on a tight budget. Those companies that don't have the means to replace their computer system in the event of a cyberattack could easily shut down. This coverage can help ensure that they have enough money to cover a few weeks of lost revenue. 4. Coverage for Loss of Goodwill When a business buys another company, the price that the purchaser pays for that business is based on the value of its assets. However, goodwill also comes into play when a company acquires another business because it represents the intangible benefits of that business, such as a customer base and a reputation for good quality products or services. When calculating the value of this goodwill, accounting firms take into consideration factors such as a brand’s recognition and loyalty. For example, a company that sells GM cars or Apple products will have goodwill on its balance sheet because these brands have a long period of operation and are recognized for their quality products and services. Goodwill insurance protects companies against the loss of revenue due to the failure to pay customers for goods they have shipped to them, regardless of the circumstances. The policy can also help companies defend their terms and conditions of carriage, and pay commercial settlements to customers who have suffered losses as a result of the wrongful acts of a third party. 5. Coverage for Cyber Attacks Typically, cyber liability insurance policies include business interruption expenses and the costs of hiring an expert to help businesses recover from a cyber incident. These are important coverages that small businesses need to ensure they can continue operating after a cyber attack. One key way to protect yourself against a cyber attack is by backing up your data. This helps prevent the loss of sensitive data that can cause financial damage or lead to third-party claims. Another important way to prevent a cyber attack is to keep your technology and software systems updated. This will remove vulnerabilities that hackers can exploit to gain access to your system. A hacker attacks a company’s computer system to do one or more of the following: shut down the computer, steal customer information, deface websites/social media, and extort money via ransomware. Cyber attacks can also affect your business’s reputation, which can impact your bottom line if it can lead to a lawsuit or negative publicity. Therefore, it is important to have cyber liability insurance in place so you can regain your goodwill and brand equity quickly and effectively. 6. Coverage for Damages Resulting from Cyber Attacks Cyber liability insurance can help you cover a wide variety of damages that result from a cyber attack. This includes legal costs associated with a client's lawsuit, forensic investigation expenses, credit, and fraud monitoring services, Payment Card Industry (PCI) compliance fines, and more. The coverage may be provided as part of a cyber policy or as stand-alone coverage. You can also purchase additional coverage to address specific liabilities or situations that your business is exposed to. For example, if you’re a technology business that recommends software to clients, you should consider adding a cyber liability policy to your general liability or errors and omissions (E&O) policy. Cyber insurance has been around for about 20 years. Premiums have been steadily rising, but the market is still growing. As the industry matures, we expect to see more exclusions and clarifications emerge. 7. Coverage for Loss of Confidential Information Cyber insurance offers coverage for losses resulting from the loss of confidential information. This is important to businesses that store customer information and other sensitive data on their network or computers, including names, addresses, medical records, credit card information, Social Security numbers, tax identification numbers, and more. In addition to providing privacy liability coverage, most policies also include notification costs and crisis management expenses. These help a business assess the extent of the breach, identify whose information was compromised, and provide assistance with restoring identities. It’s also a good idea to carry an extension of cyber insurance coverage for “social engineering.” This type of cyber attack uses human interaction, such as phishing emails or calls, to gain access to sensitive information. Some policies also offer business interruption coverage if the network or computer system is shut down due to a cyber attack on a third-party server. This can be particularly helpful if the company relies on the services of other businesses for critical functions. 8. Coverage for Payment Card Industry (PCI) Compliance Cyber liability insurance coverage protects against financial losses resulting from data breaches and other cyber incidents. Policies vary by insurer, but most include both first-party and third-party coverages. Cyber security isn’t something most businesses can afford to ignore, especially if their business operates online or stores sensitive customer information. A recent study from the Ponemon Institute found that businesses that have experienced a data breach had to spend an average of $4 million to restore their operations. The best way to protect your company against these expenses is by ensuring you are PCI compliant. Being PCI compliant can help you avoid fines, improve your reputation, and protect cardholder data. PCI compliance requires your company to document all of its activities related to credit card data. These include how and when it flows into your organization and who is able to access it. This needs to be tracked in a centralized log, such as a security information and event management (SIEM) system. It must also be reviewed at least daily to look for suspicious activity and anomalies.