In today’s digital age, businesses are increasingly reliant on technology to streamline operations and enhance productivity. However, this growing dependence on digital infrastructure also exposes companies to the ever-evolving threat of cyberattacks.
Data breaches, ransomware attacks, and other cyber incidents can have devastating consequences, resulting in financial losses, damaged reputation, and legal liabilities.
According to a CNBC report, cyber threats continue to evolve and become more sophisticated, and therefore prioritizing cybersecurity has become a fundamental requirement for businesses. In 2022, the urgency of this need was evident, as there was a notable 61% increase in phishing attacks.
These attacks targeted mobile devices and messaging apps more frequently, further stressing the importance of implementing robust security measures to safeguard sensitive information and data.
To protect themselves from these potential risks, businesses are turning to cyber liability insurance policies. But not all policies are created equal. When considering a cyber liability insurance policy, it is crucial for businesses to carefully examine the coverage and benefits offered.
In this article, we will explore eight key factors to consider when evaluating a cyber liability insurance policy.
1. The Type of Coverage You Need
The type of cyber liability insurance coverage you need will depend on the types of cyber incidents you are most concerned about. If you are a business that deals with sensitive customer data, you will need coverage for data breaches. If you are a business that uses a lot of technology, you may need coverage for ransomware attacks.
You need to carefully consider your specific needs before you buy a cyber liability insurance policy.
Connected Risk Solutions note some additional details that you may want to consider when choosing the type of coverage you need:
- The size of your business
- The industry you are in
- The amount of sensitive data you collect or store
- The level of technology you use
- Your budget
2. The Limits of Liability
The liability limit in an insurance policy determines how much money the insurance company will pay out if you experience a cyber incident. The limits of liability are typically expressed in two ways: per-occurrence limit and aggregate limit.
The per-occurrence limit is the maximum amount the insurance company will pay out for a single cyber incident. The aggregate limit is the maximum amount the insurance company will pay out for all cyber incidents in a policy period.
You need to choose a limit of liability that is high enough to cover your potential losses. However, you also need to be aware that the higher the limit of liability, the more expensive the policy will be.
3. The Deductible in the Policy
The deductible is the amount of money you’ll have to pay out of pocket before the insurance company starts paying for covered losses. The deductible is typically a fixed amount, but it can vary depending on the policy. For example, a policy with a $10,000 deductible means that you’ll have to pay the first $10,000 of any covered loss before the insurance company will pay anything.
The deductible is an essential part of any cyber liability insurance policy because it helps to keep the premiums down. If you have a high deductible, you’ll pay lower premiums, but you’ll also have to pay more out of pocket if you experience a cyber incident.
The amount of the deductible is a trade-off between the cost of the premiums and the amount of out-of-pocket expenses you’re willing to accept. You’ll need to decide what’s right for your business based on your budget and risk tolerance.
4. The Duty to Defend
The HIPAA Journal recently reported that Onix Group, a company based in Pennsylvania that specializes in real estate development and offers business management and consulting services, is currently facing a lawsuit for allegedly failing to prevent a ransomware attack. The attack resulted in the theft of protected health information belonging to 320,000 individuals.
The incident came to light when Onix Group detected the ransomware attack on March 27. Subsequent forensic investigation revealed that the hackers had gained access to their internal network from March 20 to March 27, 2023. During this period, the attackers managed to exfiltrate files containing sensitive data, including information related to employees, affiliates, and clients.
In the event of such a lawsuit, the policy’s duty to defend clause becomes highly relevant. The duty to defend is a clause in most cyber liability insurance policies that requires the insurance company to pay for your legal fees if you’re sued as a result of a cyber incident. This is regardless of whether or not the insurance company ultimately agrees to cover the claim.
The duty to defend can be a valuable asset, as it can help you to protect your business from the financial burden of a lawsuit. If you’re sued as a result of a cyber incident, the insurance company will appoint lawyers to defend you and will pay for their fees. This can be a significant financial relief, as legal fees can be very expensive.
You need to note that the duty to defend is not always unlimited. The insurance company may have the right to limit the scope of their defense, or they may have the right to withdraw from the defense if they believe that the claim is not covered by the policy.
5. The Notification Requirements
The notification requirements specify how promptly a policyholder must inform the insurance company in the event of a cyber incident. It is crucial to understand the time frame for notification to ensure compliance and maximize coverage benefits.
Failing to notify the insurer within the specified timeframe could lead to a denial of the claim. Therefore, businesses should be aware of these requirements and have a well-defined incident response plan in place to promptly report any cyber incident and take necessary steps to mitigate potential damages.
6. The Subrogation Clause
The subrogation clause in a cyber liability insurance policy empowers the insurer to seek reimbursement from the responsible party for any claims or expenses they covered related to a cyber incident.
Suppose the insurance company compensates the policyholder for losses resulting from a cyber event caused by another individual or entity. In that case, the subrogation clause gives the insurer the right to pursue legal action against the liable party to recover the paid-out amount, helping to protect the policyholder’s financial interests.
7. The Exclusions in the Policy
Forbes states that businesses should be well-informed about the limitations of cyber insurance coverage. Notably, cyber insurance does not cover property damage, even if it results from a cyber breach, nor does it extend to criminal activities or intentionally dishonest acts perpetrated by the business.
Additionally, damages caused by non-cyber-related disruptions like utility failures or weather events are also excluded from coverage.
Knowing the exclusions is essential for identifying potential gaps in coverage and being aware of the threats or events for which the policy may not offer protection.
8. The Reputational Damage Coverage
In the event of a cyber incident that tarnishes your business’s reputation, this reputational damage coverage helps cover the expenses associated with reputation repair efforts.
It may include costs related to public relations campaigns, crisis management services, and communication initiatives aimed at rebuilding trust and goodwill with customers and stakeholders. Having this coverage ensures that your business can swiftly address reputational harm and work towards restoring its brand image in the aftermath of a cyberattack.
Conclusion
Selecting the right cyber liability insurance policy is a paramount decision for businesses in the digital era. By considering the eight key factors discussed in this article, businesses can ensure they are adequately protected against cyber threats.
With cyberattacks becoming increasingly sophisticated, having a comprehensive and tailored insurance policy in place can be the difference between swift recovery and severe financial losses. Prioritizing cybersecurity and investing in a robust cyber liability insurance policy is a proactive measure that safeguards businesses and their stakeholders in the ever-evolving cyber landscape.
