Cyber insurance is becoming increasingly necessary for businesses of all sizes, which could alter how insurers issue these policies
Key takeaways:
- Cyber insurance is becoming more necessary for businesses
- Premiums could increase as a result
- Insurers could force businesses to reduce their risks and limit their exposure
- Taking the necessary steps can help keep your policy active
As a business owner, you likely take all kinds of precautions to protect your company. For instance, you probably have fire alarms, emergency exits, anti-burglary devices, and commercial insurance, to name just a few. Each of these protections plays an important role in the overall security of your organization.
Cyber insurance is rapidly becoming another necessary security tool for small and medium-sized businesses because it offers liability protection if a data breach releases customer information. Without insurance, smaller companies especially would likely never recover from the damage done by such a breach, so putting protections in place is essential.
However, as cyber insurance becomes nearly mandatory for business, insurance companies are altering their practices to keep up with demand and mitigate their risks. So what’s the future of cyber insurance? Here’s an answer to that question and a look at the state of the cyber insurance industry as a whole.
What is cyber insurance?
Cyber insurance, or cybersecurity insurance, is a form of business liability insurance that pays for damages caused by a data breach. This insurance can help while your company restores customer identities, recovers lost data, and repairs computers and other office equipment damaged by an attack.
Your policy could cover specifics such as notifying customers of the attack, legal expenses, credit monitoring following the attack, and any regulatory penalties or fines you might be on the hook for in the aftermath. If you store customer data on-site or in an off-site data center, you need cyber insurance protection if disaster strikes.
Higher premiums
Because cyber insurance is nearly mandatory for most businesses at this point, insurance companies have to take on additional risk when issuing it. The chance of any business experiencing a data breach is elevated, as data suggests that 66% of small-to-medium-sized businesses in the United States are attacked annually.
The global average cost of a data breach is $4.35 million, but that number jumps to a staggering $9.44 million in the United States, which most small businesses can’t hope to cover and still keep their doors open. The only solution is insurance, which puts the burden on insurance companies to cover these expenses.
As a result, we’re likely to see cyber insurance costs continue to increase as the cyber threat landscape becomes more dangerous. It’s already happening, as the U.S. Government Accountability Office reports that insurance premiums increased substantially in 2020, with more than half of businesses seeing their costs jump by 10%-30%. Estimates suggest that premiums could increase by as much as 50% in certain industries in the short-term future.
In short, insurance companies are taking on increasing risks because of the cyber threat landscape and are passing this risk on to their clients. Some insurers are also changing their requirements for approving customers for cyber insurance because of the current risks of digital disruption across all sectors.
Changing requirements
As the cybersecurity landscape changes, insurance companies are asking more of their clients before issuing cyber insurance. Businesses must put controls in place to manage their cybercrime risk, or they could end up losing their coverage.
In the past, simply declaring that you had certain controls in place to reduce the risk of cybercrime was sometimes enough. However, insurance companies now want proof that you have a cybersecurity plan and protection, complete with proper documentation.
Small- and medium-sized business owners must continuously follow the requirements of their cyber insurance policies or risk missing out on a payment if they become victims of an attack. In fact, organizations with inadequate protections in place could lose their coverage even if they have a longstanding relationship with their insurer. To put it simply, you have to be proactive and work with your insurance company to figure out a plan for reducing your cybercrime risk in order to ensure that you’re fully protected.
How to find a cyber insurance provider
The good news is that there are plenty of cyber insurance providers worth considering. You just need to select the right option to meet your needs.
The first step when seeking a provider is locating an option that aligns with your company’s risk exposures. You’ll need to ensure you’re covered for scenarios your business could likely encounter rather than signing up for a broad policy that doesn’t provide targeted coverage.
Your policy should also account for the ever-changing cybersecurity industry. Risks can rapidly evolve, and if you’re only assessing your risks once per year, you could be exposed if criminals alter their strategies on the fly. Your insurer should recognize that fact and adapt your policy accordingly.
You’ll also want to select an insurance provider who helps you get back on your feet again after a cyber attack. Nothing is more frustrating than waiting around for an insurance payout when you want to be rebuilding, so look for a provider who will help you resume normal business operations as quickly as possible.
An insurance company that will discuss and educate you on cyber risks is incredibly valuable. That way, you can manage your risks and prevent cybercrime from hindering your business moving forward.
Speak with an insurance professional
Your cyber risk is constantly evolving, and your insurance provider will likely have to pass more of the risk on to you in the coming months and years. However, many insurance companies also actively assist their clients in reducing their exposure, which can limit their chances of being victimized and potentially bring the cost of premiums back down.
NICRIS Insurance offers personal, life, and commercial insurance in New York State. Our team will discuss your cybersecurity and cyber insurance needs and craft a policy that addresses your business’s unique exposure. Contact NICRIS Insurance today for more information on the future of cyber insurance or to get a quote.