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What is Cyber Liability Insurance?

Contributor: Allison Wojcik, Commercial Specialist

February 28th, 2024 | 6 min. read

By Tony Calavitta

What is Cyber Liability Insurance?

It’s another normal Tuesday at work and you’ve almost cleared your email inbox when, out of nowhere, your entire system freezes. Your monitors are unresponsive, your files appear scrambled, and you don’t know what to do.

You try to force quit your applications (No luck). You shut down your computer and restart it (No luck). So, you start to panic (And of course, you have nothing but luck with that).

In an instant, a cyberattack holds all of your data – from sensitive customer information to payment history – for ransom. And, as if punched by a digital fist, you're bruised by the realization that the future of your business teeters dangerously on the foundation you’ve worked so hard to build.

This isn't just a tall tale – it's a terrifying reality that businesses face all the time in our increasingly tech-driven world.

If only there was a way to shield your business from situations like the one described above…oh wait, there is!

Cyber Liability Insurance.

In this article, we will discuss why Cyber Liability Insurance may be your business’s best defense against cyberattacks, offering proactive security measures, financial protection, reactive support, and more.

Keep reading to learn:

  • What Cyber Liability Insurance is
  • Which protections Cyber Liability Insurance does (and does not) offer
  • Whether (or not) Cyber Liability Insurance is the right safeguard for your business

What is Cyber Liability Insurance?

Cyber Liability Insurance is a specialized form of insurance designed to protect businesses against the financial losses resulting from cyber incidents.

In today’s era where online operations are central to nearly every business, the risk of cyberattacks, data breaches, and other digital threats is ever-present. This type of insurance acts as a safety net, offering financial protection and support services to help businesses both prevent and recover from these virtual vulnerabilities.

What does Cyber Liability Insurance cover?

Cyber Liability Insurance policies offer a diverse range of coverage options, catering to the specific needs of various businesses.

Here are some of the most common ones:

Data breach expenses

Data breaches can be an organizational nightmare, impacting customers, damaging reputation, and incurring hefty financial penalties.

Cyber Liability Insurance can help mitigate these financial burdens by covering:

  • Customer notification: The cost of notifying affected individuals about the breach, including mailing letters, emails, or phone calls.

  • Credit monitoring: Providing credit monitoring services to individuals whose data was compromised can help prevent future identity theft and associated financial losses.

  • Legal fees: Covering legal costs associated with lawsuits filed by customers or regulatory bodies in the wake of a data breach.

Cyber extortion response

Ransomware attacks, where hackers encrypt your data and demand a ransom to unlock it, can be devastating for businesses.

Cyber Liability Insurance can offer:

  • Negotiation and crisis management support: Assistance from experienced professionals in negotiating with attackers and managing the public relations fallout during an attack.

  • Ransom payment: While not ideal, some policies may cover the cost of ransom payments (up to policy limits), helping to minimize financial losses.

Cyber business interruption

Cyberattacks can disrupt business operations, leading to lost revenue and productivity.

Cyber Liability Insurance can help recoup these losses by providing:

  • Reimbursement for lost income: This can help businesses recover financially from the temporary halt in operations caused by a cyberattack.

Forensic investigation

Investigating the source and scope of a cyberattack is crucial for both remediation and prevention.

Cyber Liability Insurance can reimburse:

  • Costs associated with forensic investigation: This includes hiring specialists to identify the source of the attack, assess the damage caused, and collect evidence.

Crisis management

In the aftermath of a cyberattack, restoring public trust and reputation is vital.

Cyber Liability Insurance might cover:

  • Public relations expenses: Assistance with managing public perception and regaining customer trust through PR campaigns and media outreach.

What does Cyber Liability Insurance NOT cover?

While Cyber Liability Insurance offers valuable protection, it's important to understand its limitations.

Here's a closer look at some common policy exclusions:

Physical property damage

Damages to physical assets caused by cyber incidents, such as a fire in a server room triggered by a cyberattack, are typically not covered under standard cyber liability policies.

Intentional acts by the insured

Acts of fraud or intentional misconduct committed by the business or its employees are not covered. The insurance is designed to protect against external threats and unintentional internal incidents.

Future lost profits

While immediate business interruption is covered, future lost profits due to reputational damage are generally not included. Rebuilding your brand post-incident requires a separate strategic approach.

Post-incident costs of Improving cybersecurity

Expenses related to upgrading your cybersecurity infrastructure or implementing new security measures after an incident are usually not covered. The focus is on recovery, not enhancement.

Do businesses need Cyber Liability Insurance?

In today’s digital-first world, the question is no longer whether businesses need Cyber Liability Insurance…rather, it’s whether they can really afford to not have it.

As business operations become increasingly digitized, the exposure to cyber threats escalates.

With this in mind, Cyber Liability Insurance doesn't only offer a financial safety net post-incident. It also becomes a critical component of risk management, providing businesses with the resources and support to prevent cyber incidents swiftly and effectively.

The stark reality

A single cyber incident can disrupt operations, erode customer trust, and inflict severe financial damage. The aftermath of such incidents often extends beyond immediate financial losses, potentially leading to long-term reputational damage and legal complications.

The clear solution

Cyber Liability Insurance isn’t an optional extra but an essential shield, safeguarding businesses against the unpredictable but increasingly common threat of cyber incidents.

What types of businesses need Cyber Liability Insurance?

The simple answer is that virtually all businesses need Cyber Liability Insurance.

However, the necessity and scope of coverage might vary based on several factors, including the nature of the business, the type of data handled, and the scale of digital operations.

Here's a closer look at businesses that particularly stand to benefit from Cyber Liability Insurance:

E-commerce platforms

Handling vast amounts of customer data and transactions online, e-commerce businesses are prime targets for cybercriminals. Cyber Liability Insurance can protect against data breaches, payment fraud, and business interruption.

Healthcare providers

With sensitive patient data at stake, healthcare providers must comply with stringent data protection regulations. Cyber Liability Insurance is crucial for managing the financial and reputational risks associated with data breaches.

Financial services

Banks, investment firms, and insurance companies deal with highly sensitive financial information, making them attractive targets for cyberattacks. Cyber Liability Insurance helps mitigate the risk of financial losses and regulatory penalties.

Small and medium-sized enterprises (SMEs)

Often operating with limited cybersecurity resources, SMEs are increasingly targeted by cybercriminals. Cyber Liability Insurance provides an affordable way to manage cyber risk and ensure business continuity.

Professional services

Law firms, accounting firms, and consulting firms handle sensitive client information. Cyber Liability Insurance protects against the consequences of data breaches and ensures compliance with professional standards.

Educational institutions

Schools and universities store personal information about students and employees, making them vulnerable to cyberattacks. Cyber Liability Insurance supports the costs associated with data breaches and system recovery.

Technology companies

For businesses that develop or provide technology solutions, the risk of cyber incidents is inherent to their operations. Cyber Liability Insurance is vital for protecting intellectual property and customer data.

  Here's the key takeaway     

Any business that stores, processes, or transmits digital data – be it customer information, financial records, or proprietary data – does need and should have Cyber Liability Insurance.

As cyber threats evolve in complexity and frequency, having this insurance is an indispensable part of safeguarding your business's future in the increasingly electronic age.

Do you need Cyber Liability Insurance?

With technological advancement moving faster than ever, the importance of Cyber Liability Insurance for businesses cannot be overstated.

While every business should strongly consider this protection, understanding your specific risk profile is essential in determining the level and type of coverage that best suits your needs.

Here are some key factors to consider:

Do you handle high-risk data?

Businesses that handle sensitive data like financial information, medical records, or personally identifiable information (PII) face a greater risk of cyberattacks. A data breach involving this type of information can have significant financial and legal repercussions.

Cyber Liability Insurance can provide crucial financial support for responding to such incidents and mitigating the associated damages.

Do you have an extensive online presence?

Businesses heavily reliant on online operations, such as e-commerce, online services, or remote work, have a larger attack surface. This means they have more points of entry for potential cyber threats.

Cyber Liability Insurance can offer support in managing cyber risks associated with online operations and help recover from potential disruptions caused by cyberattacks.

Do you have limited resources? 

Can your business absorb the financial costs associated with a cyberattack, including covering data breach expenses, lost income, and legal fees?

Cyber Liability Insurance can act as a financial safety net, helping your business recover from the financial impact of a cyber incident without worrying about exhausting resources.

Is your business required to carry a policy?

In some industries, specific regulations mandate a certain level of cyber security and data protection.

Having Cyber Liability Insurance can demonstrate your commitment to compliance with these regulations. This can be particularly important for businesses operating in highly regulated industries like healthcare or finance.

Don’t let digital disaster strike! Secure your business with Cyber Liability Insurance

If you are here, you now know what a game-changer Cyber Liability Insurance is for businesses, turning the risk of cyberattacks from a potential disaster into a manageable challenge.

But understanding the importance of this type of insurance without taking steps to secure it won't shield your business from the growing number of digital dangers.

So, why not work with a Combined team member to make sure your business is both prepared for and protected from cyberattacks?

Our team of commercial insurance experts has already guided businesses, just like yours, through the process of choosing the right coverage. And we are dedicated to doing the same for you!

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This article is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.