Learning how this coverage works can help you select the right policy to meet your company’s needs
Key takeaways:
- Any cyber insurance policy you invest in will have a deductible
- This deductible determines your out-of-pocket expenses when filing a claim
- If your deductible is too high or too low, your policy won’t be as effective or affordable
- You can secure lower rates by limiting your cyber risk
As a business owner, you already know the value of an insurance policy. This coverage protects you from the unforeseen and could keep your company afloat if it experiences harm from fire, theft, or a liability claim.
In today’s climate, cyber insurance is just as crucial as traditional policies. According to IBM, the average cost of a data breach in 2023 is $4.45 million, while Statista reports that attacks led to the release of over six million records in the year’s first quarter alone.
The expenses associated with a cyberattack could be enough to ruin your business if you don’t have protection. Investing in an insurance policy is essential as hackers and other cybercriminals target more companies.
You’ll need to consider your deductible and coverage amounts as you select the ideal option to meet your business’s needs. Here’s what you need to know about deductibles and how they work in cyber insurance.
How cyber insurance deductibles work
A deductible is the amount your company will pay for damage before your insurance coverage kicks in. It means that your company is taking on some risk, which can help lower your monthly insurance premiums.
When considering the size of your deductible, you’ll need to assess your company’s risk of cyberattack. Some organizations are comfortable with a higher deductible because they’re at a relatively low risk of being attacked. But if you work in a high-risk industry where cybercrime is becoming increasingly common, you might be better off selecting a policy with a lower deductible because your inflated risk makes it more likely you’ll need to use the insurance. Higher coverage amounts can also lead to higher deductibles because the insurance company is on the hook for more money if you experience a cyber incident.
While a low deductible is appealing because it means you’ll pay less out-of-pocket in the event of an attack, it also means that your monthly premiums will likely be higher. So when choosing a deductible amount, you’re really balancing up-front costs against potential (and larger) future expenses. The key is to do some research and find a sweet spot where you aren’t overpaying on your monthly premiums but will still be able to afford the deductible amount if cybercrime comes your way.
Selecting a suitable policy
Once you understand how deductibles work, you can look at specific policies and select the option that meets your company’s needs. The first step is assessing your risk profile based on the likelihood that you’ll become the victim of a cyberattack.
When determining your risk, you’ll need to look at the stats regarding attack frequency and average costs within your industry. Companies that operate exclusively online or send significant amounts of data through their networks take on more risk because there’s a greater chance a hacker will uncover a vulnerability. However, most modern businesses send or store at least some data, so few firms are entirely safe.
You can then look at your revenues, assets, and potential threats and consider the possible consequences of an attack on your company. This will help you understand the amount of damage you could incur from an attack.
From there, you can determine how much coverage you’ll need and consider deductible options. Remember that the goal is to ensure that your company survives after a cyberattack, so your policy should provide enough coverage to mitigate most of your expenses.
Deductibles and cyber insurance claims
Your deductible amount isn’t necessarily a direct out-of-pocket expense where you have to write a check to the insurance company. Instead, your insurance company will likely subtract the deductible from your payout.
For example, if you have a cyber insurance policy with a $2,000 deductible, you can expect your insurer to subtract $2,000 from any claim you make. If a cyberattack creates $50,000 in losses for your organization, the insurance company will send you $48,000 after subtracting the deductible, and your company will pay the remaining expenses.
Managing your cyber insurance deductibles
As you shop around for cyber insurance, you’ll naturally want a policy that provides the coverage your business needs with the lowest possible deductible and premiums. The best way to achieve this goal is by mitigating your cyber risks.
You can take multiple steps to reduce your cyber security risk, including securing your network, having an IT team monitor traffic, and staying on top of all software updates. You’ll also want to create an incident response plan to quickly and efficiently deal with any attacks that occur.
Your insurance company will want proof of the steps you’re taking to reduce your cyber risk, so keep all your paperwork and create detailed records of your efforts. The more you can prove you’re doing to mitigate your risk, the easier it becomes to secure lower deductibles without giving up too much coverage.
Periodically reviewing your insurance policy, including your deductibles, is also advisable. During this review, consider whether you’re still happy with your deductible amount and if you have other options. The more effort you put into securing a cyber insurance policy that checks all the necessary boxes, the better it’ll be for your company’s long-term health.
Finding the ideal coverage for your business
Your cyber insurance deductible might seem inconsequential, but selecting the wrong amount could leave you with significant out-of-pocket expenses. Carefully examining your insurance policy and ensuring your business can comfortably afford the deductible is a vital step in protecting your organization from attacks.
NICRIS Insurance Agency offers personal, life, and commercial insurance, including cyber. Our team will help you determine the ideal coverage to suit your company’s unique needs, eliminating much of the guesswork. Contact NICRIS for a thorough explanation of our cyber insurance coverage or a free quote.