How Much Does Cyber Insurance Cost?

Do you know how much your cyber insurance costs, with new cyber threats constantly emerging and evolving? The Internet has irreversibly altered the way businesses operate, ushering in a new era of opportunity and uncertainty for services and commerce.

In most cases, a business must have some kind of online presence in order to be successful today. Businesses today must be able to sell products and services online, market themselves, and communicate with customers.

It should come as no surprise, then, that the number of cyberattacks on businesses of all sizes is steadily increasing year after year. This is critical because cyberattacks can be financially and reputationally devastating to your company.

While there are best practices that can be implemented to protect your business from cyberattacks, there is no foolproof solution for completely avoiding them. The next best way to protect your company from cybercrime is to purchase business insurance policies that transfer some of the risk associated with cyberattacks to a third party, specifically an insurance company.

What Exactly Is Cyber Insurance?

Cyber insurance is a contract between you and an insurer in which the insurer agrees to pay you for any losses caused by your computers or network.

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Cyber insurance protects against a wide range of cyber incidents, from computer damage to data breaches. In fact, the simplest way to explain cyber insurance is to discuss the types of events it covers.

Who Should Get Cyber Liability Insurance?

In today’s business climate, it’s difficult to find a company that doesn’t require cyber liability insurance. You need it if you run a business that stores sensitive client, customer, and partner data. If your company accepts electronic payments, you must have it.

One of the most common misconceptions about cybersecurity is that cybercriminals only target large corporations because they can steal the most money and cause the most damage.

Attacks on small businesses are on the rise, and this trend is expected to continue in 2020 and beyond. Indeed, the COVID-19 pandemic is fueling the fire. With more companies allowing their employees to work from home and many brick-and-mortar businesses launching online services, social engineering attacks and data breach attempts will almost certainly increase for businesses of all sizes and industries.

Cyber Insurance: First-Party vs. Third-Party

The type of cyber liability insurance your company decides to purchase should always be based on your company’s needs and which entities require protection. When it comes to cyberattacks, the business being attacked is not the only one who may suffer losses. As a result, there are two types of cyber insurance policies: first-party and third-party.

Your company is protected by first-party cyber liability insurance. It will cover all costs associated with a cyberattack, including but not limited to: Forensic analysis to determine the source of the attack, Services for public relations, Client notification, Services for credit monitoring and Income reduction.

Any company that deals with electronic data should have first-party coverage to cover the numerous costs that can arise as a result of a cybercriminal hacking into their network and compromising the company’s data as well as the data of its clients, partners, and customers.

Third-party cyber liability insurance is designed to protect businesses that provide professional services to other businesses that are vulnerable to cyberthreats.

Third-party cyber liability insurance is similar to professional liability insurance in that it can protect you if you are sued by another company for errors you made that resulted in losses or damages to that company.

Common Cyber Liability Claim Types

In general, cyber insurance claims are typically filed as a result of attacks that fall into one of three categories: hacking, social engineering, and malware attacks.

The most common type of cyberattack that results in insurance claims is probably hacking. If a hacker compromises your system or network, your company may be liable for a variety of expenses related to the attack. As previously stated, legal fees to defend your company against third-party lawsuits, notification costs, public relations costs, and regulatory fines are all possible and would be covered by your cyber policy.

Phishing or social engineering attacks rely on someone within your organization to assist in “unlocking” the door to your data. A phishing attack is when a would-be hacker sends an email to an employee claiming to be from the CEO of your company, asking them to click on a link. The employee clicks on the link, which downloads something malicious to your network, allowing hackers access to your data.

The best defense against these types of cyberattacks that rely on employee negligence is to provide workplace education about these threats and to preach vigilance and awareness to your employees.

Malware attacks are also extremely common and can take many different forms. What makes preventing malware from infiltrating your system difficult is that each type of malware attempts to infiltrate your network in a different way. Ransomware, for example, hijacks your system and demands a ransom payment before releasing or unlocking it.

Recovering from a malware attack, whether it’s ransomware, spyware, or a DDoS attack, can be costly and time-consuming.

What Is the Cost of Cyber Insurance?

Whatever type of insurance policy you choose, certain aspects of your company are thought to be the primary drivers of cyber insurance costs. This means that the cost of cyber insurance will vary depending on the type of business you run and the level of cyber risk you face.

According to a recent study conducted by AdvisorSmith Solution Inc., the average cost of cyber insurance in 2019 was $1,500 per year for $1 million in coverage, with a $10,000 deductible.

Of course, depending on several key factors, businesses can pay much less or much more for their coverage.

What Factors Influence Cyber Insurance Prices?

Let’s look at some of the key business characteristics that insurers must investigate and identify before calculating your company’s cyber insurance cost and premium.

1. Dimensions and Industry

The size of your company is significant because the more employees you have, the more vulnerable you are to phishing and social engineering attacks. However, when it comes to determining the needs and cost of your cyber insurance, your industry is most likely the single most important characteristic of your business.

2. Data Quantity and Sensitivity

Low-risk businesses, such as local businesses with a small customer base, will pay less for cyber insurance than, say, a retail store that receives and stores customer credit card numbers in their store as well as on their website or ecommerce shop.

A high-risk company would be one that stores a large amount of highly sensitive personal data, such as Social Security numbers, dates of birth, and other highly personal information.

3. Annual Income

In the eyes of the insurer, the more money your company makes, the more likely it is that a cybercriminal will want to target it. As a result, the higher your company’s revenue, the higher the cost of cyber liability insurance.

4. Security Measures’ Strength

Lower premiums will be offered to businesses that devote significant resources and efforts to preventing cybercrime. High-risk businesses should educate their employees about these threats and hire experts to install security protocols, monitor hardware and software security, and develop proper procedures and plans for what to do if a cyberattack occurs.

5. Policy Definitions

Your coverage limits and deductible will also have a significant impact on your premium. The higher your coverage limit, the more you’ll have to pay. The limits on cyber liability coverage typically range between $500,000 and $5 million per occurrence.

The deductible is the amount of loss for which your company is responsible in the event of a cyberattack covered by your policy. Businesses should consult with their brokers to determine the best options for them. For example, if you pay a lower deductible, you will pay less in the event of a cybercrime, but you will end up paying a higher premium.

How to Reduce the Cost of Your Cyber Insurance

One recurring theme when discussing cyber insurance costs is the widely accepted best practice of focusing on proper cyberthreat prevention and management in order to minimize risks and save on coverage.

As with any other type of commercial insurance, the fewer claims filed against your company that your insurer must cover, the lower your premiums will be over time.

The first step in managing your cyber liability risks is to educate your employees. Employees who understand what cyberattacks look like and what suspicious communications to avoid will be less likely to do anything that puts your company at risk. Making sure your employees understand what phishing and social engineering look like provides them with the awareness they need to avoid falling for these types of schemes.

As previously stated, having an in-house security team dedicated to protecting your company from cyberthreats is a wise investment, particularly in high-risk industries.

Another critical aspect of mitigating cybercrime risk is ensuring that your business partners and any third parties who have access to your networks are also well protected and do not pose a security risk.

Conclusion on cyber Insurance

It should be noted that cyber liability insurance cannot prevent a cyber attack or data breach.

Cyber liability insurance, like car, home, or health insurance, compensates you for financial losses caused by a breach. This is analogous to driving while wearing a seatbelt. It will not prevent a car accident, but it will help keep you safe if one occurs.