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Breaking Down Cyber Liability Insurance

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Cyber liability insurance (or cybersecurity insurance) is a specialized product designed to assist businesses in managing losses resulting from computer networking threats like data breaches, cyber extortion, and technology disruptions. Cyber liability insurance mitigates risk by transferring the financial costs associated with a cyber attack, including legal representation, notifying affected parties, investigation of the breach, and data restoration. 

Once an organization's leaders have decided the risk imposed by IT assets is too much to bear alone, they need to prepare a reliable strategy to assess whether it can be transferred to an insurer. 

In this article, we will outline the process of conducting a preliminary risk assessment to identify where the risk lies within an organization and what types of risk cyber liability insurance policies typically cover.

What Cyber Liability Insurance May Cover

It's important to note that the specific coverage offered varies widely between the insurance providers and the terms of the policy. No two business liability insurance providers offer exactly the same coverage and it's quite common to find that some insurers will not provide cyber liability coverage at all, while others may cover only some forms of damage. 

It's important to use a sound strategy when shopping for cyber liability insurance by first understanding the unique risk landscape that applies to your organization and then doing adequate research before selecting the provider and policy that best fits your organization.

Let's review some specific business operations that can be covered by a cyber liability policy:

Network Security Liability

  • Covers expenses related to network security failures, such as data breaches, malware infections, cyber extortion demands, ransomware, and business email compromise

  • Protects a company from costs incurred directly due to a cyber incident, such as legal expenses, IT forensics, negotiation and payment of ransomware demands, or data restoration

Privacy Liability

  • Protects companies from liabilities arising from cyber incidents or privacy law violations

  • Covers third-party costs, including defending against consumer class action litigation and funding potential settlements in the event of a data breach

  • Provides coverage for legal expenses, fines, and penalties resulting from regulatory investigations by government or law enforcement agencies, both domestic and foreign

Network Business Interruption

  • Offers a solution for companies facing operational cyber risks

  • Helps recover lost profits, fixed expenses, and extra costs incurred during a network outage caused by a cyber incident

  • Covers losses resulting from security failures (e.g., third-party hacks) and system failures (e.g., failed software patches or human errors)

  • This can include the costs of credit monitoring, and identity restoration in the case that financial data or personally identifiable information (PII) is stolen

Media Liability

  • Provides coverage for intellectual property infringement 

  • covers both online advertising (including social media) and print advertising

  • Breach notification to consumers, setting up call centers, and public relations expertise

Errors and Omissions (E&O)

  • Covers claims arising from errors or failures in the performance of services that generate revenue

  • Includes technology services (e.g., software, consulting) as well as traditional professional services (e.g., legal, medical, architectural, engineering)

  • Addresses allegations of negligence or breach of contract, offering legal defense costs or indemnification resulting from lawsuits or disputes with customers

Follow a Reliable Process For Obtaining Cyber Liability Insurance

Once business leaders have a comprehensive understanding of the types of cyber liability insurance that are available, organizations should follow a reliable process to identify the specific areas of their business that could benefit from coverage. Then make informed decisions when shopping for cyber liability insurance. The right coverage will help safeguard their operations, mitigate financial losses, and protect their reputation in the event of a cyber incident.

Following these steps can ensure comprehensive coverage and reduce the risk to the organization when shopping for cyber liability insurance:

  1. Conduct a Comprehensive Business Risk Assessment: Begin by performing a thorough business risk assessment to identify and document potential cyber risks in your organization's operations. Evaluate the types of sensitive data you handle, your IT infrastructure, network security measures, and employee training, and seek to identify any other potential vulnerabilities. Understanding your specific risks will help tailor the cyber liability insurance policy to address those critical areas effectively

  2. Map Risk To Cyber Liability Insurance Coverage: Based on the results of your risk assessment, pinpoint the specific areas where cyber liability insurance could benefit your organization the most and compare these high-risk areas to cyber liability insurance policies available in the market. Familiarize yourself with these types of coverage, and assess which types align with your organization's risk needs and level of exposure. These may include data breaches, ransomware attacks, business interruption due to cyber incidents, legal and regulatory liabilities, public relations expenses, and notification costs

  3. Work with a Knowledgeable Insurance Broker: Collaborate with an experienced insurance broker who specializes in cyber liability insurance. An expert broker can guide you through the complexities of insurance policies, help you understand the nuances of various coverage options, and provide valuable advice on selecting the right policy for your organization's unique risks and budget

  4. Obtain Multiple Quotes and Sample Policy Structures: Gather quotes and sample policy structures from multiple insurers to compare coverage options and pricing. Each insurer may offer different coverage limits, deductibles, and policy terms, so obtaining several quotes allows you to make an informed decision and find the best value for your organization's needs

  5. Carefully Review Exclusions and Limitations: Certain incidents or risks may not be covered, or there might be specific conditions that must be met for coverage to apply. Understanding these details will help you manage expectations and avoid potential gaps in coverage. After identifying coverage exclusions it's also important to review your organization's existing cybersecurity policies to ensure that risk that cannot be transferred is adequately mitigated using other strategies

  6. Evaluate the Insurer's Reputation and Claims Handling Process: Research each insurer's track record in handling cyber insurance claims, including their responsiveness and willingness to support policyholders during and after a cyber incident. Choose an insurer with a solid reputation for efficiently processing claims and providing support when it matters most

  7. Ensure Coverage Aligns with Regulatory Requirements: If your organization operates in specific industries or regions, there may be legal and regulatory requirements for cyber liability insurance coverage. Ensure that the policy you select meets or exceeds any applicable legal obligations to avoid potential penalties and compliance issues

  8. Review and Update the Policy Periodically: Cyber risks and technology are constantly evolving, so it's important to review and update your cyber liability insurance policy periodically. Stay in touch with your insurance broker and make adjustments to your coverage as your organization's operations and risk profile change

Formal Cybersecurity Policies Can Reduce Insurance Premiums 

Formal cybersecurity policies can significantly impact the final price of cyber liability premiums. Insurance companies assess the level of risk associated with insuring an organization against cyber threats, and having well-defined cybersecurity policies in place demonstrates a commitment to mitigating potential risks. Formal policies provide evidence of a culture of awareness and proactive efforts to mitigate the likelihood and potential damage of cyber-breach.

Here are some foundational cybersecurity activities that organizations should formalize into policy before seeking cyber liability insurance:

  • Security Awareness Training: Educate employees about cybersecurity best practices, common threats (such as phishing and social engineering), and how to recognize and report potential security incidents

  • Strong Access Controls: Implement least privilege access principles, ensuring that users have access only to the data and resources necessary to perform their job functions. Require users to use multi-factor authentication (MFA) to access sensitive systems or data, adding an extra layer of security against unauthorized access. Segment the network to separate critical assets and sensitive data from less sensitive areas, limiting the potential impact of a breach

  • Vulnerability Management and Patch Management: Conduct regular scans to identify vulnerabilities in software, systems, and applications and ensure prompt application of security patches and updates

  • Continuous Monitoring: Implement robust monitoring systems to continuously track network and endpoint activities including any mobile devices that connect to company networks

  • Penetration Testing: Conduct controlled simulated cyber attacks on the organization's network, applications, and systems to identify potential weaknesses and address them before malicious actors can exploit them

  • Incident Response Planning: Develop a comprehensive incident response plan that outlines specific steps to be taken in the event of a cybersecurity incident. Regularly testing and updating the plan to ensure it remains effective. Perform regular backups of critical data and systems to ensure data availability in case of data loss due to cyber incidents

  • Data Encryption: Encrypt sensitive data both in transit and at rest to protect it from unauthorized access and maintain confidentiality

Conclusion

Cyber liability insurance can help businesses manage losses resulting from cyber threats. To obtain appropriate coverage, organizations should follow a reliable process that begins with a comprehensive risk assessment. By mapping identified risks to available cyber liability coverage, businesses can understand the specific areas of their operations that could benefit from insurance protection. 

Working with knowledgeable insurance brokers, obtaining multiple quotes, and reviewing policy structures are vital steps in finding the right coverage. Also, formal cybersecurity policies play a crucial role in reducing insurance premiums. Implementing foundational cybersecurity activities, such as security awareness training, strong access controls, vulnerability and patch management, continuous monitoring, penetration testing, and incident response planning, can reduce the cost of premiums. 

By combining a robust cybersecurity posture with appropriate insurance coverage, organizations can safeguard their operations and protect themselves against potential financial losses resulting from cyber incidents. Download our free Buyer's Guide to learn more.

Download our Free Buyer's Guide

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