A Guide to Cyber Liability Insurance for Businesses in Connecticut

The one crime that puts a business in a dangerous position in 2022 is cyber security breach. Norton Security estimates that cybercriminals will steal an estimated 33 billion records in 2023.

A data breach can bring down the business’s operations to its knees, whether the crime relates to a breach of data or stolen information.

In this article we’ll cover what exactly cyber liability insurance is , how it will protect your business, and if you have a breach, how to file a claim.

Understanding Cyber Liability Insurance

 

Also known as the internet liability insurance or data breach coverage, this insurance policy covers property loss and liability that occurs when a business is struck with a data attack. The information collected is electronic in nature, and when the data is breached, cyber liability insurance comes into effect.

Here’s what this policy covers:

• Privacy/data breach insurance covers expenses associated with remediating and investigating a cyber-attack, along with regulatory fines and legal costs.
• Multimedia coverage that protects a website from being compromised or defaced.
• Extortion liability coverage that deals with ransom attacks where hackers hold the data hostage.
• Network security liability that insures you from attacks that my compromise third parties, who you hire for payment processing or other such services.

Here’s an example of cyber liability coverage:

You own a company that manufactures car components. One of the employees, while procuring materials for the parts, accidentally clicked on a Trojan link that was sent via email. A malware spread through this email and infected the company server.

Every piece of information was encrypted and the board of directors received a message that if the company did not pay $10,000 in Bitcoin, the hacker will not provide the decryption key. They were given 48 hours to make the exchange or the hacker was going to release sensitive information about the company.

A cyber crime unit was called and the CEO got in touch with the company’s insurance agent to do damage control. Thankfully, the culprit was caught but not before some of the data was corrupted. Information was still in the safe and partial data was recovered. The incident response expenses were covered by the insurance agency and the company continued operations unscathed.

The extent of cyber liability insurance goes beyond just protecting a company from a data breach. A company that deals with sensitive information on a daily basis should invest in this policy.

 

 

5 Important Questions to Ask Before Buying Cyber Liability Insurance

 

While buying cyber liability insurance or any insurance coverage for that matter, you have to fully understand the coverage, exclusions, factors determining the cost of premiums, etc. Considering the fast development of the hacking world, it’s important to have cyber liability insurance.  

If you want to buy cyber liability insurance, but don’t know which insurance company to choose, here are the questions to ask before buying cyber liability insurance:

 

What Does Cyber Liability Insurance Cover?

 

Cyber liability insurance covers the cost of: 

• Data restoration
• Expenses to restart operations 
• Crisis management 
• Notification cost
• Cyber extortion 
• Ransom payments businesses have to pay to get access to their data 
• Liability arising from failure to protect data 
• Expenses of regulatory investigations 

Cyber liability insurance protects businesses from both first-party and third-party damages. First-party damages include the damages that the organization and business directly face. On the other hand, third-party damages and settlements that the company faces due to its failure to act and not being able to prevent the attack. 

Every type of insurance has its own set of inclusions and exclusions. It’s important to find out what exactly will the insurance cover. The best way of setting things straight for you and going through the details is to involve your legal team. 

As discussed earlier, cyber liability insurance usually pays for recovering the data, legal settlements and the cost of preparing the defense if the company is sued, hiring experts to repair the damage, notifying customers about the breach, and the financial loss caused due to business interruption and lost employee productivity. 

The insurance covers first-party and third-party damages. However, it’s important to review the inclusions to make sure that the cyber liability insurance policy meets your business needs.  

 

What Does Cyber Liability Insurance NOT Cover?

Similar to other types of insurance coverages, cyber liability insurance has a few exclusions, too, including: 

• Profit loss during the shutdown
• Bodily injuries 
• Property damage
• Reputational damage 

Are There Any Incidents that are Specifically Excluded from the Coverage?

Along with inclusions, cyber liability insurance also carries a few exclusions. The exclusions can vary by the insurance company. Therefore, it’s important to review different policies thoroughly before buying cyber liability insurance coverage. 

Some insurance companies exclude certain events from the coverage. Usually, insurance companies do not cover lost profit in the event of a business interruption due to a cyberattack. The insurance doesn’t protect the companies against reputation damage as well. 

 

How Long Does the Insurance Company Take to Respond After a Cyberattack Has Been Reported?

Insurance companies are obliged to act quickly. Make sure to inquire about the insurance company’s downtown period. If the downtown time is over 24 hours, we recommend you settle on a different cyber liability insurance provider.  

 

Does the Insurance Company have Relevant Experience in Your Industry?

It’s important for many organizations and businesses to work with insurance companies that have relevant knowledge and experience in their industry. Some industries and businesses have specific data compliance regulations. Therefore, it’s important to go with an insurance company that understands the data handling rules of your industry. 

For businesses and organizations, it’s of no use choosing an insurance company that doesn’t have knowledge and experience to cater to your business needs, regardless of how affordable or cheap they might be. 

 

How Much Does Cyber Liability Insurance Cost?

On average, businesses and organizations pay $1,485 per year or $125 per month as their cyber liability premium payments. In 2019, the average cost that businesses pay for cyber liability insurance was around $1,500 for a $1 million coverage limit. 

There are various factors that the cost of cyber liability insurance depends on. To set the monthly premium cost, insurance companies look into several factors, including the company’s industry, the type of data collected and stored by the company, level of data risk, policy limits, privacy policies, how much sensitive data your company holds, revenue, the number of PII/PHI records, and network security. 

The cost of cyber liability insurance is on the higher side. However, the immediate costs of cyberattacks are significant, making cyber liability insurance worth every penny. To decrease the cost of cyber liability insurance, businesses have to work on the proper prevention and management of cyberattacks. 

 

What are the Factors the Provider Considers to Determine the Cost of Cyber Liability Insurance?

It’s important to ask the insurance provider about the factors determining the cost of cyber liability insurance.

As discussed earlier, the common factors that insurance companies look into include the type of data collected and stored by the company, how much sensitive data your company holds, revenue, the number of PII/PHI records, level of data risk, policy limits, privacy policies, and network security.

 

The primary factors include the level of risk the company is exposed to because the more the risk, the higher is the cost of cyber liability insurance. Cyberattacks are too sudden and too fast. There are a few preventative measures companies can take to prevent cyberattacks, including training your staff to ignore fraudulent emails impersonating someone in your organization, keeping your software up to date, installing a firewall, backing up your data, etc. 

However, buying cyber liability insurance coverage is equally important because prevention doesn’t work 100%. 

 

 

 

Most Commonly Asked Questions About Cyber Liability Insurance

 

Does Your Cyber Liability Insurance Freeze if You Are Late on a Payment?

Usually, your cyber liability insurance policy doesn’t freeze if you are late on a payment. However, it may experience an increase. To know for sure, it’s important that you ask the insurance company about the effects of late payments on your cyber liability insurance premiums before buying the policy. 

 

Why Do Small and Mid-Sized Businesses Need Cyber Liability Insurance?

Small and mid-sized businesses need cyber liability insurance as much as large-sized businesses need. Many small and mid-sized business owners have a misconception that their organizations are safe from cyberattacks because hackers usually target large-sized corporations. 

The stats show that 43% of the cyberattacks target small businesses, and 60% get permanently shut down within the first 6 months. In 2020, cyberattacks on small businesses increased by 424%. Still, 54% of the small businesses in the US believe that they are too small for a cyberattack. 

 

Are There Any Other Types of Insurance Coverages that Protect Companies Against the Risk of Cyberattacks?

Insurance like general liability, directors and officers, property, and crime insurance, may provide limited cyber liability insurance coverage. In some cases, these insurance policies did not or provided very limited coverage, while in others, they offered necessary coverage to the companies. 

Even if the common institutional insurance policies provide coverage, it wouldn’t be enough to cover the third-party damages. The best option here is to purchase cyber liability insurance. 

 

Information Needed for Filing a Cyber Liability Claim

 

When determining rates for cyber liability insurance, the agency looks at a number of things. Businesses need to make sure that they are providing accurate information to the insurance agency, so that when the time comes to file a claim, there are no delays.

The following factors are considered before a quote is given:

 

Description of Operations

 

The type of business you run and what kind of sensitive information is collected on a daily basis.

 

Total Revenue

 

The business’s total revenue decides how big the operation is. The amount of money flowing into the company is used to set a bench mark for the coverage. The policy can also be customized to include third-party liabilities.

 

Transactions Processed or Records Stored

 

How often are purchases made online through credit cards by the company? This helps set the rate through the transactions made. The agent goes through the stored record to find out what the extent of the coverage will be.

 

Online Presence

 

If you own a company that majorly deals with customers and business through online transactions, then the exposure to cyber liability will be bigger. Hence, the cyber liability coverage for such companies will be greater.

 

Past History

 

Has your company been exposed to cyber incidents or litigations in the past? Who were the people involved: vendors, employees, customers, or outside parties? The incidents that took place 3 years before are looked at to find out what the damage was, and the information collected is used to set the rates.

Depending on what coverage you are choosing, you have the option to make a few additions in the policy such as protection from computer fraud, cyber terrorism, (related to the political side of the business) and fraudulent transfer of funds.

Don’t forget to include third-party liability coverage because the data breach that concerns third-parties puts you at risk of being sued by thousands of customers. You need to make sure that your network is secure and capable of handling an attack automatically. With so much advancement in technology, such services are easily available but that doesn’t mean you should not purchase cyber liability insurance.

 

Takeaway – Is Cyber Liability Insurance Worth It? 

 

Cyber liability insurance is one of the most important types of insurance coverages for businesses and organizations, regardless of their size. If your network or system gets hacked into by a virus, cyber liability insurance can be of great help. 

The insurance covers businesses against financial losses, pays for legal expenses and settlement costs, and includes the cost of notifying customers about the data breach. 

With the increase of cyberattacks, the need for cyber liability insurance coverage has increased too. In 2019, 1,473 data breaches occurred in the US, which accounted for 164.68 million records exposed, and the number increased to 155.8 in 2020. 

Cyber liability insurance gives business owners the peace of mind that if anything goes wrong in the future, they have insurance to cover the loss and prepare for a legal defense if their customers sue them for not preventing the attack. 

Before buying cyber liability insurance coverage, it’s important to inquire the insurance company about the exclusions, inclusion, cost, and other important details. Many businesses rely on prevention than purchasing cyber liability insurance. However, it’s important to understand that preventive measures don’t completely wipe away the possibility of cyberattacks.