What Is Cyber Insurance and Why Do You Need It

June 4, 2022

With nearly 6 billion compromised accounts reported, data breaches set a new record in 2021. More than 100 million Android users unknowingly handed over their names, messages, passwords, and other sensitive data to hackers in May alone. And that’s just the tip of the iceberg. American business owners also face big risks, with 55 percent experiencing at least one data breach and 53 percent falling victim to multiple breaches. Data breaches aren’t just inconvenient—they’re costly. IBM recently reported that breaches associated with email cost business owners an average of $5 million in 2020. As cybercrime increases, insurers continue to add more protection for business owners. Here’s a shortlist of what you need to know.

Do I Need Cyber Insurance?

Small businesses are easy targets for identity thieves because they generally have fewer security measures than large corporations. Regardless of size, if your business handles credit card numbers or stores sensitive information on the cloud, you should carry cyber insurance.

What Does Cyber Insurance Cover?

There are generally two types of cyber insurance: first-party and liability coverage.

First-party coverage

First-party coverage offers financial assistance for businesses that need help with recovery costs. 

While policies vary, most cover:

  • Investigation of the incident and a risk assessment for future incidents
  • Lost revenue
  • Ransomware attack payments
  • Cost of customer notification in the event of a data breach
  • Cost of anti-fraud services like credit monitoring

Liability coverage

Business owners may be on the hook for damages from compromised customer data. Liability coverage protects your business if a third party sues for damages resulting from a data breach. Liability insurance generally covers:

  • Attorney and court fees
  • Settlements and court judgments
  • Fines incurred for noncompliance

Technology errors and omissions insurance

Technology errors and omissions insurance (Technology E&O) is a unique form of insurance that provides additional protection beyond standard first-party and liability policies. Say, for example, that customer data wasn’t stolen from your company. Rather, it was taken from the customer’s computer due to a software defect in the program you sold to that customer. In unique cases like this, first-party and liability coverage would not be sufficient. You’d need Technology E&O coverage.

What Doesn’t Cyber Insurance Cover?

While every cyber insurance policy is unique, most do not cover:

  • Systems upgrades: If you’re the victim of a data breach and decide to upgrade systems to protect against future attacks
  • Future profits: Generally,  cyber insurance protects you from lost revenue, but they do not cover future profit loss that may result because your company’s reputation is damaged
  • Decreased valuation: If the breach impacts the overall value of your company

Helping You Find the Right Cyber Insurance Policy

Hoffman Hanono has offered affordable insurance solutions since 1959. Lean on our experience, and we’ll help you find a comprehensive cyber insurance policy that fits your budget and needs, no matter what they are. Contact us today to learn more about what cyber insurance is and how we can help.