Cybersecurity insurance is an industry that has seen steady growth over the last few years. Studies show that around 50% of all businesses have an active cybersecurity policy, which is a big boost from 2 years ago when that number was 34%. It’s clear to us now that cybersecurity has become a permanent factor in today’s vulnerable market.
But although the rise has been steady, plenty of businesses still don’t know what they’re dealing with regarding cybersecurity insurance. Besides, this isn’t something only corporations need, but small businesses too, and there’s a lot to cover in that department. So naturally, the level of awareness regarding this type of insurance is still moderate. It gives rise to some important questions, what exactly is cybersecurity insurance, and do we really need it?
What Is Cybersecurity Insurance?
Cybersecurity insurance is a type of contract that businesses or entities can purchase to mitigate the financial risk of maintaining an online business. These insurance policies cover cybersecurity threats and function as a repair aid in post-attack scenarios.
What this insurance does, is take care of some of the costs involved in case of a cyber-attack. The most basic of these policies will help cover elements like investigation costs or help by bringing in damage control experts. All this comes for a nominal fee the company must pay monthly or quarterly.
We live in a digital world where more and more real-life applications are forming their online counterpart, and it’s no different with cybersecurity. It’s like hiring a security team to patrol your office building, except it happens online. Now, imagine there was a security breach in your company, which involved some burglars breaking in and stealing important company information. Such kind of incidents could cost you a lot in the long run.
Naturally, as the company owner, you’ll want to investigate who committed the breach and possibly recover your company data. Such an investigation will cost you a massive amount. You’ll have to hire a special investigation team filled with experts who can assess the situation, detect, and fix any weaknesses in your security system, and look for a trail that leads to stolen company property. Doing all of this will add to your data breach cost.
The Cost Of Data Breaches
Companies incur a lot of expenses because of cybersecurity breaches, with recovery costs often ranging in the millions. And it only gets worse when it comes to cases of ransomware, with recovery expenses stretching even further.
Research indicates that the average cost of a cybersecurity breach in 2021 was around $4.24 million in 2021. This year, that figure has spiked up to $4.35 million. That’s 12.7% in two years if we measure statistics from 2020.
As cyber-attacks get more and more brazen, it is common for companies to chalk up millions after a breach. Even with the best cybersecurity software guarding your company’s data, there are still chances of breaches. Given the current situation, it’s a wise thing for companies to procure a good cybersecurity insurance plan.
Cybersecurity insurance has helped companies reduce the cost of recovery by a significant margin. No longer will you stand alone when dealing with the aftermath of a damaging breach. Now, the insurer will also bear the cost of recovery, which is a sigh of relief for businesses and enterprises.
How Does Cybersecurity Insurance Help?
The world is filled with hackers looking to steal company data and exploit it for their own benefit. Companies often hold important electronic data which have been paid for or are owned by investors. So naturally, losing such data can result in the company losing the trust of its shareholders. Not to mention, it also results in the loss of customers and hampers the company’s ability to secure future revenue.
A good cybersecurity insurance policy can help with the recovery process and reduce some of the negative impacts of data theft. This is especially important in the case of a ransomware attack, from which companies stand to lose tens of millions.
That’s why a good cybersecurity insurance policy covers both first-party and third-party losses. First-party coverage helps the company recover from any losses that it suffers directly. Meanwhile, third-party insurance covers any losses suffered by investors, shareholders, and partner companies and takes care of lawsuit expenses.
Most insurance policies for cybersecurity cover any cost related to legal assistance, investigation costs, refunds for customers, and overall crisis management. This makes having a cybersecurity insurance policy an absolute must in 2022.
A Brief History Of Cybersecurity Insurance
Cyber threats became increasingly prominent as businesses started relying on electronic data and cloud-based storage. Companies usually hold sensitive and valuable data, which becomes easy targets for hackers. All this culminated in the rise of cybersecurity and, eventually, cybersecurity insurance.
The first cybersecurity insurance examples popped up in the 90s, during the infamous dot-com bubble. Although it hadn’t reached its current form yet, it was still available in a limited capacity. These policies initially covered data processing errors or technical glitches in online media. At this time, there was no coverage for the company itself, and it usually had exemptions for penalties, regulatory errors, or antics from disgruntled employees.
As the internet became increasingly complex, new threats started appearing on the horizon. Soon, companies faced data theft, information breaches, unauthorized access from hackers, virus attacks, etc. This made insurers boost their services to include more coverage for such instances during the 2000s.
Despite this rise in online security threats, plenty of companies weren’t too quick to jump onto the cybersecurity bandwagon. For some companies, cybersecurity insurance was more of a response to a recent attack rather than an official preventive measure. This initial carelessness led to several breaches, either due to virus-related incidents or employees going rogue. However, some companies still did not maintain reliability in insurance policies.
Things got more serious when California passed the Security Breach and Information Act in 2003. According to the law, any business based in California was now responsible for notifying any individual or company whose data had been stolen or accessed by an unauthorized entity. This gave way to many other states passing similar laws until it became clear that companies were responsible and liable for any security breaches. Soon, cybersecurity insurance not only became a standard but also non-negotiable when running a digital business.
Cybersecurity Insurance Today
Today, the world is well aware of the need for cybersecurity insurance, as we’ve seen a steady rise in cyber-attacks. Hackers have numerous techniques in their employ; some of them include ransomware, social engineering, and malware. This is unavoidable, as hackers understand our reliance on digital technology and exploit it.
Cybersecurity insurance companies are evolving to tackle this rise in security threats. Insurance companies today must create policies that cover a wide range of attacks and incidences, which is a huge difference from back when they would only cover technical glitches. Simply put, the cybersecurity insurance game has transformed into a complex and intricate element with several layers.
The positive side is that insurance companies now know how to tackle various issues and can provide multiple solutions for digital businesses. However, explaining the various methods, risks, and details becomes a chore as the game gets more complicated. Often, companies fail to understand or see why they need cybersecurity insurance until they suffer from a breach.
For the most part, cybersecurity insurance has indeed become a permanent part of today’s market. So far, almost 50% of digital companies have adopted insurance policies for their cybersecurity. We assume that this margin will increase in the years to come.
What Are Some Of The Biggest Data Breach Cases In Recent History?
Cybersecurity breaches have seen their fair share in recent times, with each case becoming bolder than the previous. Even some of the biggest digital companies, like Yahoo, LinkedIn, and Facebook, have gone through such attacks. The impact was massive in each case, leading to colossal recovery costs. Let us take a look at a few examples.
LinkedIn 2012 Cyber Attack
The world’s biggest professional networking platform, LinkedIn, has suffered some of the biggest data breaches we have seen. Moreover, the company faced this issue not only once but twice.
The first case of security breach happened in June 2012, when the company announced that a recent cyber-attack had resulted in the loss of 6.5 million passwords. The culprits had somehow breached LinkedIn’s security systems, stolen valuable data, and posted it later on a Russian hacker forum. While this was a big breach in itself, the reality was that LinkedIn wasn’t honest with the damages sustained.
It was only in 2016 that we got to know the full impact of the data breach. As it turns out, the same culprit responsible for the initial attack was selling email ids and passwords of over 165 million LinkedIn users. And the worst part was that it was sold for just 5 bitcoins, roughly $2000 during that time. The company quickly acknowledged its mistake and announced that it had reset the passwords of the breached accounts.
LinkedIn 2021 Cyber Attack
In 2021, LinkedIn suffered its most devastating security breach, with essential data from 700 million users being stolen. The culprit was a hacker under the alias ‘God User,’ who exploited LinkedIn’s website API to steal information from countless users. The culprit then claimed to sell the full data catalog of over 700 million users.
The stolen data packs included sensitive information such as phone numbers, email addresses, and general information related to the customers. This would obviously help scammers carry out engineered attacks on the helpless customer base. The company’s reputation suffered a huge blow after the attack. We aren’t sure how much LinkedIn spent to recover from this attack, but we can assume the figures were gigantic.
One of the reasons the company managed to survive such a death blow was its cybersecurity insurance. Their insurance policy would have covered a significant portion of the recovery and investigation costs. Not to mention the cost of updating their security systems and data protection techniques.
Yahoo 2013 Cyber Attack
The 2013 cyber-attack on Yahoo is one of the biggest we’ve seen and cost the company millions in reparations. The incident resulted in 3 billion accounts being exposed, which is a gigantic number for any tech company. The attackers responsible for the incident got access to security questions and answers for the concerned accounts. However, essential information such as bank and payment details, passwords, etc., were not breached.
Despite this, the damage was still plenty, as scammers would find a way to uncover information from these accounts using the security questions and answers that they stole. The whole deal, stained Yahoo’s reputation and affected its acquisition deal with Verizon. Although Verizon did end up acquiring Yahoo, it did so after a negotiated cost reduction of $350 million.
Yahoo 2014 Cyber Attack
The next big cyber-attack on Yahoo came just a year after the 2013 incident. The 2014 cyber-attack resulted in the loss of 500 million Yahoo accounts. Important information, such as phone numbers, email addresses, and hashed passwords, were all breached in this calculated attack. The attackers later sold off these stolen details in the black market for a significant profit.
As a result, Yahoo’s stock prices dropped 3%, which resulted in the company losing out on $1.3 billion. And that’s just the losses Yahoo suffered in the stock market; in reality, the damage was far more impactful. The company was charged a penalty of $35 million and had to pay $85 million in settlement charges. They also had to pay around $35 million for their attorney fees, plus more for investigation and legal charges.
Although the losses were colossal, they would’ve been insurmountable without their cybersecurity insurance. Their insurance policy would have covered the brunt of the investigation and recovery expenses.
Sony PlayStation 2011 Network Attack
Sony suffered a massive network attack in 2011 when hackers stole the personal information of 77 million PlayStation network users. Sony immediately shut down its network for a week to prevent any more damage. Gamers couldn’t log into their accounts and were shut out of the PlayStation network, which affected the company’s reputation.
The PlayStation network is a significant holder of credit card data, which was quite a matter of concern during the breach. The company claimed that they had not detected any loss in credit card information at the time. However, investigations revealed that the hackers had stolen more than 12,000 credit card numbers in encrypted form.
In the aftermath, Sony suffered a $171 million loss due to the incident. What’s more, the British Information Commissioner’s office charged them with a penalty of £250,000. Multiple lawsuits followed, claiming that the company had failed to safeguard customer interests, tarnishing Sony’s reputation.
What Does Cybersecurity Insurance Cover?
People often get confused with the concept of cybersecurity insurance, with most businesses assuming that a general liability policy covers everything they need.
But in reality, general insurance only covers property damage or bodily injuries. It does not hold any preventive measures or coverage for elements related to digital information. That’s where cyber insurance comes in.
Covering First-Party Damages
In 2022, cybersecurity insurance policies cover various factors, all of which are important for a digital business of any size. Cyber insurance provides coverage for data breach liabilities involving customer data such as credit cards, social security, and other personal information.
A decent cyber insurance policy covers legal fees and expenses related to data breaches and provides other essential services. Insurance policies also take up the responsibility of notifying customers in case of breaches. This is generally something that companies should do by themselves; however, the process is not always feasible. A good cyber insurance policy guarantees that every affected user is notified promptly.
Cyber insurance policies also help recover and restore the personal data of users affected by a cyber-attack. Moreover, they can also aid in repairing any damaged network systems and help during the investigation process. Finally, cyber insurance companies have also stepped in and improved the security systems of various enterprises after an attack.
Covering Third-Party Damages
Although cyber-attacks directly affect the targeted company, there are also plenty of third-party damages to consider. It involves any claims or lawsuits made by customers, government agencies, and partner companies who have a stake in the affected company. A good cyber insurance policy helps cover some of the costs in such situations.
An insurance company can help your enterprise deal with expenses related to its legal defense. It is especially helpful when an entity, private or governmental, has made claims of negligence towards your company. Moreover, your cyber insurance company can also help you deal with lawsuits regarding breaches of privacy and contract. Finally, your insurance will also help you cover the cost of any fines and penalties issued by regulatory bodies.
Cyber insurance not only helps your company financially but also works to rebuild your brand’s reputation. It is quite common for a company’s reputation to sink in the aftermath of a vicious attack. That’s why having a premium insurance policy can be quite helpful in such circumstances.
Cyber insurance companies take control of crisis management and offer essential services to reduce public outrage. After all, your customers are your bread and butter, so it is crucial that you restore their faith in your company. Cyber insurance companies can do this by establishing a clear line of communication and providing necessary statements to repair your company’s reputation.
Most cyber insurance policies also cover ransomware attacks; however, this is more of a gray area. That’s because most companies choose to pay out in the event of a ransom attack, as opposed to keeping their system shut down for weeks. Still, insurance companies do provide all the help they can in dealing with such situations.
What Are The Requirements For Cybersecurity?
Cybersecurity insurance companies require you to maintain certain factors to qualify for their services. Most of it has to do with meeting the basic standards for IT security. Companies usually do a cyber insurance risk assessment before deciding to offer their services. The assessment usually involves an analysis of your IT infrastructure and security setup and may also include a study of your company’s activities.
At the basic level, all companies wishing to acquire a decent cybersecurity insurance package protect their networks with a firewall. You should also regularly back up your company data externally or by using a cloud service. Every PC owned by your company should have antivirus software installed with the latest updates. Finally, there should be a secure provisioning process for user access rights and permissions.
At the more advanced level, some insurance companies are requiring email filtering, SPF enforcement, endpoint detection ad response (EDR) tools, multi-factor authentication, secure backups, and more.
How Much Does Cybersecurity Insurance Cost?
A decent cybersecurity insurance plan will cost you $1000 if you have a small business with a moderate amount of employees. However, if you have a big company with a high level of customer data, employees, and annual revenue, you can expect the cost to go up to tens of thousands of dollars.
Most firms will up their costs as your company grows bigger. That’s because it’s impossible to determine the future insurance costs of a growing company. Naturally, the more your company grows, the more data it will handle, giving rise to newer and bigger risks. So, you can expect the premium fees for policy providers to go up significantly in the future. In fact, studies show that the overall cost of cyber insurance sky-rocketed by 130% in 2021.
Should You Purchase Cyber Security?
Given the rise in premiums, it is predictable that many small enterprises might ignore cyber insurance. After all, the prospect of paying thousands to tens of thousands for insurance might be overwhelming for businesses. However, you must understand that the increased costs are directly related to increased threats.
There are numerous ways that hackers can exploit your business in 2022. Even if your cybersecurity firm can tackle all the old tricks, hackers will always develop new ones that can penetrate your network. It’s not a matter of if but when the hackers will innovate these techniques. Considering all this, we would say that digital businesses must acquire a robust insurance policy that covers even the most unpredictable events.
If you need assistance with securing your firm against cyber-attacks, contact us at Pennyrile Technologies for a free consultation and see how we can help your business.