Is Cyber Insurance Worth the Cost? Pros & Cons Explained

With one high-profile attack after the next making headlines in recent years, it’s clear we won’t see a decrease in threats any time soon. The uptick in cybercrime has organizations asking, “is cyber insurance worth the cost?” The quick answer — yes! 

Operating without cyber insurance leaves an organization open to the world of evolving threats and all the ripple effects of a cyberattack.

Key Takeaways

• Is cyber insurance worth the cost?” The quick answer — yes! 
• Cyber threats are increasing and a cyberattack can happen to a company of any size.
• The costs of cyber insurance are becoming increasingly expensive for both insurer and the insured, doing nothing to prepare has far-reaching implications.
• Preparedness is the central factor in the effectiveness of both cyber insurance and resilience against cyberattacks.

How Much Does Cyber Insurance Cost?

Cyber insurance premiums are influenced by a variety of factors, making it difficult to give a one-size-fits-all estimate. A study by AdvisorSmith Solution Inc. found that the average cyber insurance cost in 2019 was $1,500 per year for $1 million in coverage with a $10,000 deductible. Keep in mind that this is just an average, and your costs could be higher or lower depending on your specific circumstances.

Understanding the key cost drivers can help you anticipate and manage expenses.

Factors that affect cyber insurance costs include:

• Insurance providers: If you rely on a third-party services provider, their cybersecurity practices can affect your premiums.
• Business size and revenue: Larger businesses with higher revenues typically face higher premiums due to their greater potential for financial loss in a cyber incident.
• Industry: Industries that handle sensitive personal data (healthcare, finance) or are frequent targets of cyberattacks (retail, technology) often pay higher premiums.
• Cybersecurity posture: Businesses with strong cybersecurity measures in place, such as multi-factor authentication, employee training, and incident response plans, may qualify for lower premiums.
• Coverage limits and deductibles: Higher coverage limits and lower deductibles result in higher premiums.
• Claims history: Businesses with a history of cyber insurance claims may face higher premiums.
• Data sensitivity: The type of data you handle influences your risk profile. Businesses that store sensitive personal or financial data face higher premiums.
• Data volume: The amount of data you store and process also affects your risk. Larger data volumes generally lead to higher premiums.

Pros of Cyber Liability Insurance

Cyber liability coverage offers a safety net for businesses navigating the complex world of cyber threats. Here’s how it can benefit your organization:ents, policies and training, and detection and response. 

Protection Against Financial Losses

Cyberattacks can lead to significant financial losses due to data recovery, system repairs, legal fees, and regulatory fines. Cyber liability insurance acts as a financial buffer, helping your business recover from the financial impact of a cyber incident. It can cover costs associated with:

• Incident response: Hiring cybersecurity experts to investigate the attack, contain the damage, and restore computer systems.
• Data recovery: Retrieving and restoring compromised data.
• Legal and regulatory costs: Addressing lawsuits, regulatory fines, and customer notifications.
• Business interruption: Covering lost revenue and expenses incurred due to downtime caused by a cyberattack.

Legal Protection

Data breaches can expose your business to lawsuits from customers, partners, or regulators. Cyber liability insurance provides legal defense support, covering the costs of attorneys, court fees, and potential settlements or judgments. This protection is crucial for safeguarding your business’s assets and reputation in the face of legal challenges.

Reputational Damage Mitigation

A cyberattack can severely damage your company’s reputation, eroding customer trust and impacting your brand image. Cyber liability insurance can help mitigate this damage by providing access to:

• Public relations and crisis management experts: Professionals who can help you effectively communicate with stakeholders and manage the public perception of the incident.
• Credit monitoring and identity theft protection services: Offering these services to affected customers can demonstrate your commitment to their security and help rebuild trust.

Meeting Industry Standards and Partner Requirements

Many industries have strict data security and data protection regulations, such as HIPAA for healthcare or PCI DSS for businesses handling credit card information. Cyber liability insurance can help you meet these compliance requirements and avoid costly penalties. Additionally, many businesses now require their partners and vendors to have cyber insurance as a condition of doing business. Having the right coverage can open doors to new opportunities and strengthen your business relationships.

Cons of Cyber Liability Insurance

While cyber liability insurance offers valuable protection, it’s essential to be aware of potential drawbacks:

Cost Considerations

Cyber liability insurance can be expensive, especially for small businesses or those with limited budgets. Premiums are influenced by factors like the size of your business, the type of data you handle, your cybersecurity posture, and the level of coverage you choose.

To assess whether the cost is justified, it’s crucial to weigh the potential financial impact of a cyberattack against the insurance premiums. Conducting a Business Impact Assessment (BIA) can help you determine the potential costs of downtime, data recovery, and other consequences.

Coverage Gaps and Limitations

Cyber liability insurance policies can have exclusions and limitations. Some common exclusions include:

• Acts of war or terrorism: Attacks attributed to nation-states or terrorist groups are often not covered.
• Social engineering: Losses resulting from social engineering tactics like phishing scams may have limited coverage.
• Negligence: If your business fails to implement basic cybersecurity measures, your claim could be denied.

It’s crucial to carefully review your policy and understand what is and isn’t covered before purchasing. Pay attention to coverage limits, sub-limits, and any deductibles that apply.

False Sense of Security

Cyber liability insurance should not be seen as a replacement for robust cybersecurity practices. Having insurance may create a false sense of security, leading businesses to neglect essential security measures.

Remember that insurance is designed to help you recover from a cyberattack, not prevent one. Implement strong cybersecurity practices, such as:

Vulnerability management: Regularly scan for and address vulnerabilities in your systems.

Employee training: Educate your staff about cybersecurity threats and best practices.

Multi-factor authentication: Enable MFA for all accounts to add an extra layer of security.

Regular data backups: Ensure you have secure and up-to-date backups of your critical data.

Yes, Cybersecurity Protection is Absolutely Worth It

While cybersecurity insurance is a crucial safety net, it’s not enough. Proactive cybersecurity measures are still your first and best line of defense. Think of it this way: you wouldn’t rely solely on car insurance to protect you in an accident; you’d also wear your seatbelt and drive defensively.

New research shows that businesses with strong cybersecurity practices are experiencing lower ransomware costs and fewer successful attacks. Preparedness is key to minimizing the impact of cyber threats and maximizing the effectiveness of your cyber insurance.

To strengthen your defenses, start with a comprehensive risk assessment to identify vulnerabilities and inform a holistic cybersecurity plan. This plan should include regular security testing, employee training, strong security policies, and proactive threat detection and response. 

Once your security foundation is in place, find a cyber insurance policy that complements your cybersecurity program and addresses your specific needs.

Defendify’s comprehensive cybersecurity solutions empower businesses to build a strong security posture and make informed decisions about cyber insurance.

Take action today:

• Download our Cyber Insurance Readiness Checklist to identify the current state of your cybersecurity and take the next steps to secure comprehensive coverage.
• Contact Defendify for a consultation. Our experts can help you assess your risks and develop a customized cybersecurity plan.

Don’t wait for a cyberattack to happen. Invest in cybersecurity today and protect your business from the growing threat landscape.

FAQs

What is Cyber Insurance?

Cyber insurance is a specialized type of insurance designed to help businesses manage the risks associated with cyberattacks and data breaches. Think of it as a safety net for the digital age. It helps organizations recover from the financial and reputational damage caused by various cyber incidents, such as:  

• Data breaches: When sensitive customer information, like credit card numbers or personal health records, is stolen or exposed.  
• Ransomware attacks: When hackers encrypt your data and demand a ransom for its release.  
• Malware infections: When cybercriminals disrupt your business operations or steal data through malicious software.  
• Phishing scams: When employees are tricked into revealing sensitive information or downloading malware.  
• Denial-of-service attacks: When your website or online services are flooded with traffic, making them unavailable to users.  

How Does Cyber Insurance Help?

Cyber insurance provides a wide range of benefits, including:

• Financial coverage: It helps cover the costs of incident response, data recovery, legal fees, regulatory fines, customer notification, and public relations efforts.  
• Expert support: Many policies provide access to cybersecurity experts who can help you manage and recover from a cyber incident.  
• Reputation management: It can help you mitigate reputational damage by providing resources for crisis management and customer support. 
• Business continuity: It can help you get your business back up and running quickly after a cyberattack, minimizing downtime and financial losses.  

What Exactly Does a Cyber Insurance Policy Cover?

Cyber insurance policies help businesses manage the financial and reputational risks associated with cyber incidents. While the type of coverage varies between insurance companies and policy types, here’s a general overview of what cyber insurance covers:

First-Party Coverage

This type of cyber insurance coverage protects your business from its own direct financial losses due to a cyber incident. 

• Data recovery: Expenses related to retrieving and restoring compromised data.
• Ransom payments: Reimbursement for ransom payments made to cybercriminals in ransomware attacks (though not all policies cover this).
• Business interruption: Compensation for lost revenue and expenses incurred due to downtime caused by a cyberattack.
• Notification costs: Costs associated with notifying affected individuals about a data breach.
• Cyber extortion: Coverage for losses resulting from cyber extortion threats, including ransomware attacks.

Third-Party Coverage

This type of cyber insurance coverage protects your business from liability for damages caused to others due to a cyber incident. This can include:

• Legal defense and settlements: Costs related to defending against lawsuits and regulatory actions brought by customers, partners, or other third parties.
• Regulatory fines and penalties: Coverage for fines imposed by regulatory bodies due to a data breach or other cyber incident.

Other common coverages:

• Incident response: Costs associated with hiring cybersecurity experts to investigate and contain a cyberattack.
• Public relations and crisis management: Expenses for hiring professionals to help manage your reputation after a cyber incident.

What Types of Organizations Need Cyber Insurance?

In simple terms, any organization — of any size — that uses the internet or computers has some level of cyber risk and can benefit from cyber insurance.

An organization is vulnerable to cyberattacks if it:

• Relies heavily on technology for their operations (e.g., e-commerce businesses, software companies)  
• Process online payments or store financial data
• Stores personal information electronically
• Transfers documents electronically
• Handles sensitive customer data (e.g., healthcare providers, financial institutions, online retailers)  
• Would be harmed from ransomware and a business interruption event of a cyberattack

Cyber Insurance is like health, car, and home insurance in the way that you never want to rely on it, but the truth is that you need coverage for the unexpected.

Many business owners are looking to purchase cyber insurance to help mitigate risks and meet business demands. Some face the possibility of losing an existing or prospective client if their cybersecurity posture is not strong enough.

How to Keep Your Cyber Insurance Costs Down

• Focus on prevention: Invest in strong cybersecurity measures to reduce your risk.
• Educate employees: Train your staff to recognize and avoid cyber threats like phishing scams and cyber extortion.
• Work with a broker: A broker can help you find the best policy and negotiate favorable terms.  

Review your policy regularly: Make sure your coverage keeps pace with your business needs and adjust your policy as needed.