What Is Cybersecurity Insurance and Why Is It Important?

Cybersecurity | April 7, 2023

As a business that operates in and around Chicago, you’re likely no stranger to the digital age. You use technology daily as part of your workflow, whether managing customer relations or ensuring that internal processes are up-to-date.

But with all this digital information comes an increased risk of cyberattacks—which increased by 21% from 2021 to 2022. Basically, hackers are becoming more adept at targeting vulnerable businesses, both big and small. This is why cybersecurity insurance is so important for businesses like yours.

Follow along as we help you understand exactly what cybersecurity insurance is, how it works, and why your Chicago business should consider getting coverage before it’s too late.

Risks of a Cyber Attack

Before diving into the ins and outs of cybersecurity insurance, it’s helpful to understand the seriousness of a modern-day digital attack. Namely, it’s important to understand that businesses of any size can fall victim to cyber attacks.

43% of data breaches involve small businesses. What is the cost of those data breaches? The average cost is just shy of $3 million for businesses with fewer than 500 employees. Broken down, that averages about $164 per breached record.

Simply put, you don’t want to be vulnerable to an attack like this. Here are the three main ways a cyber attack damages a business in ways that no amount of online business tips can help you recover from without proper protection in place.

Financial Loss

Cyber attacks on small businesses can be especially harmful, leading to financial loss and disruption of operations. For instance, an attack can include stealing customer credit card information or destroying key data and documents.

The result of this kind of attack? Your small business has to spend a lot of money dealing with the aftermath, including:

  • Required repairs
  • Investigations
  • Security measures

Furthermore, any downtime caused by an assault can lead to decreased profits and hampered growth opportunities. These consequences can exhaust a business’s resources, culminating in short-term and long-term financial losses.

Business Interruption

Picture this: your business is humming along when suddenly you can’t access your files, your website goes down, and your employees can’t work. Yikes, you’ve just been the victim of your first cyber attack.

This leads to major downtime. For most, that’s annoying. For others, it’s critical to the success of their business. In some cases, businesses may be unable to operate at all until the issue is resolved, leading to further financial losses.

Reputation Damage

Cyber attacks on small businesses can often lead to reputation damage, which is highly damaging for companies in terms of public perception and financial losses. Examples of reputation damage range from minor embarrassing incidents to major data breaches.

If sensitive information, such as customers’ personal details or company data, is exposed, trust can be broken, and future customers may be lost due to a decrease in customer loyalty. Such events also put businesses at risk of potential lawsuits. You definitely do not want that.

What Is Cybersecurity Insurance?

How can you prevent the negative effects of the issues above? Invest in cybersecurity insurance. It’s an essential form of coverage for businesses, especially today, where cyberattacks and data breaches are more frequent.

It can help protect against the expenses of responding to a security breach, such as legal fees, technology recovery costs, and credit monitoring.

You don’t need to be tech-savvy to understand the basics of this coverage — any business owner can benefit from it. Having privacy liability coverage in place protects your company from financial losses resulting from a data breach or other cyber attack.

This could include payments for investigations into the incident (including forensic audits), customer notification bills, public relations damage control, and any costs related to settlements approved by insurers.

Importance of Cybersecurity Insurance

This type of insurance sounds great, right? It is! However, as a business owner, it’s important to understand the benefits of taking out a cybersecurity insurance policy before you commit.

It’s not just about the cost of an incident; it also covers damage to reputation, legal costs, and any disruption to your normal operations. Here are four main ways you can benefit from this type of insurance policy.

Data Breach Coverage

This type of coverage protects a wide range of losses associated with data breaches, including the following:

  • Costs for notifying those affected
  • Credit monitoring services and legal fees
  • Reimbursement for direct financial losses
  • Reputation management costs
  • Recovery efforts to restore systems after an attack

Don’t think you need all of that? You likely do. However, cybersecurity insurance policies are customizable for the specific needs of each business, so you can get the right coverage that meets your organization’s security requirements.

Legal Support

Cybersecurity insurance can also offer legal assistance and financial security in the event of an attack or data breach. This type of insurance can help cover direct costs, such as investigation expenses, and indirect costs, like reputational loss or business interruption costs.

Furthermore, many policies come with valuable resources to help limit any damage caused, including advice on data security best practices and access to expert remedies in the aftermath of an incident.

Loss Reimbursement

Cybersecurity insurance is a great way to safeguard your business from potential financial losses because of cybercrime. This covers any out-of-pocket expenses related to recovering from cyberattacks, such as:

  • Hardware replacement
  • Software maintenance
  • Legal fees

In addition, it will cover data losses to reduce the impact of any breach successfully.

Basically, this type of business insurance can be a lifesaver financially. If, unfortunately, your business ever becomes a victim of an attack or other cyber incident, having cybersecurity insurance can help protect you from major financial catastrophes.

Extortion Defense

What happens if hackers threaten to cause harm or reveal confidential information in exchange for money? You’ll be covered.

However, there’s one small caveat here. Cybersecurity insurance doesn’t usually offer protection from threats, such as ransomware attacks. It’s important to read the details of any policy carefully to ensure that it covers what you need.

Nevertheless, having an extra layer of security against extortion attempts can give businesses peace of mind in today’s increasingly digital world.

Types of Cybersecurity Coverage

Are you sold on the benefits of taking out this type of insurance policy? Great. You’re one step closer to cyber-proofing your business. The next step is to explore the different types of policies available.

Again, most providers allow you to customize your insurance package. However, there are three main types of cybersecurity coverage for businesses.

First-Party Coverage

First-party cybersecurity coverage, also known as data breach insurance, protects businesses from the financial losses that cyber incidents can cause.

It covers the costs involved with:

  • Investigating the incident
  • Assessing future risk
  • Restoring lost revenue caused by business interruption
  • Paying ransomware attack payments up to certain limits

In addition, it helps to ensure customers are notified about any security incidents and offers anti-fraud services. So, it protects more than just you and your workers.

Third-Party Coverage

Third-party cybersecurity coverage is an insurance policy that can protect your business from legal action. As such, it’s more legal-focused and less financial-focused.

This coverage will cover liability for damages due to such an incident. It generally pays for:

  • Attorney and court fees associated with legal proceedings
  • Court settlements
  • Court judgments
  • Regulatory fines for non-compliance

Since most general liability insurance does not cover data breach-related claims, you may want to invest in a cyber liability insurance policy if your business stores customer data. However, we’ll talk more about that in just a bit.

Technology Errors and Omissions

Finally, technology errors and omissions insurance protects businesses that manufacture technology products or provide technology services. This type of policy kicks in when a cybersecurity incident occurs due to an error on the part of the business.

For example, first-party or liability insurance would typically provide coverage if a customer’s data is stolen from an employee’s computer.

However, if a software program your business developed contains an error resulting in data theft from the customer’s computer, then the incident would be covered under this policy.

It provides coverage for items such as legal fees, court costs, and judgments or settlements if they’re related to products or services offered by your business.

Is Cybersecurity Included in Business Insurance?

By now, you might be asking yourself, “Can’t we just use our business insurance to cover these attacks?” You might be able to do that. However, most business insurance policies do not include comprehensive cyber coverage because it is a relatively new and complex field.

Cyber threats and attacks can be difficult to predict and prevent, and insurance companies may not have sufficient data to assess and price the risk accurately. In addition, cyber insurance policies require specialized underwriting, which can increase the cost of coverage.

To ensure your business is protected against cyber threats, we recommend you purchase a standalone cyber insurance policy that provides comprehensive coverage.

However, it’s important to carefully evaluate your business’s cyber risks as part of the process. You can work with an experienced insurance broker to select a policy that best meets your specific needs.

Who Needs a Cybersecurity Insurance Policy?

Honestly, any business with valuable data should have a cybersecurity insurance policy. However, you’re especially vulnerable if your business falls into one of the categories below.

Businesses With Large Customer Bases

Cybersecurity insurance is important for businesses with large customer bases. It can help cover certain fines they may face following a data breach.

Many states require companies to notify customers in the event of a data breach. If you live in such a state (Illinois is one of them), first-party policies can help cover this cost, which could be considerable if you own a larger business.

Businesses With Lots of Online Data

Cybersecurity insurance is important for any online business that stores or processes confidential information, such as:

  • Social Security numbers
  • Credit card numbers
  • Contact information

Cyber liability coverage helps protect your business from the legal and financial repercussions associated with data thefts or other cyber crimes related to data.

It can provide coverage for defending against claims related to lost data, repairing damage caused by malware, paying any related fines or penalties, and covering the costs of notification and investigation.

Additionally, this type of insurance may also include protection against identity theft and fraud resulting from a breach. This can apply to your employees and customers.

Businesses With Valuable Digital Assets

Finally, cybersecurity insurance is essential for businesses with highly valuable digital assets. It helps protect them from the potential costs associated with cyber incidents.

As larger businesses are likely to have greater amounts of data, they can also be at risk of expensive ransom demands or other costly damages that could arise from a cyber breach.

Cybersecurity insurance helps mitigate this risk and provides the peace of mind necessary to operate in today’s digital world. You spend a lot of time creating and building digital assets; you should protect them as best as possible.

Alternatives to Cybersecurity Insurance

While cybersecurity insurance can provide some protection, it may not cover all the risks and challenges businesses face.

Empist offers a comprehensive alternative to cybersecurity insurance, with a multi-pronged approach to cybersecurity that covers all aspects of the digital environment.

The EMPIST Security Bundle is a comprehensive network of five fundamental services. The result is a robust and affordable cybersecurity solution for businesses. Our bundled security services include the following:

  • Antivirus and malware protection
  • Firewall management
  • Email security
  • Data backup and recovery

These services are a more efficient and cost-effective alternative to traditional cybersecurity insurance, priced at just $20 per user per month.

Why choose us? With our experience and digital tools, we can provide businesses with real-time threat intelligence and continuous monitoring. We also offer a quick and effective incident response.

Get EMPIST Cyber Services

Our approach to cybersecurity is tailored to meet the specific needs of each business, providing a flexible and scalable solution that can evolve as the threat landscape changes.

With our cybersecurity services, you can protect your business against cyber attacks and secure its digital assets for the future. Consider them a more cost-effective form of cybersecurity insurance. It works around the clock to protect your business and its assets.

Contact us today to learn more.