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5 Reasons Why Your Business Needs Cyber Insurance

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Cyber attacks become more frequent, more sophisticated, and more expensive each year. For most businesses, it’s longer a question of whether their systems will be breached but when. You need cyber insurance to ensure your organization can keep its doors open after an attack with minimal interruption.

5 reasons your business needs cyber insurance

Why do you need cyber liability insurance? For starters, cyber insurance protects business owners against financial losses stemming from phishing attacks, theft of confidential information, and ransomware payments. At the same time, cyber insurance can help you resolve incidents faster, reducing any reputational harm and business interruption you might suffer.

Taken together, having a cyber liability policy in place that protects against things like security breaches, identity theft, and malware attacks gives business owners peace of mind.

Despite these benefits, many decision-makers wonder whether they truly need cyber insurance or if it’s just for peace of mind. After all, though the volume of cyber crime is increasing, some executives might take an unreasonably optimistic approach and opt to deal with a data breach if and only if it comes to pass.

Suffice it to say that’s an unwise approach — one that’s exceptionally risky as attacks continue to evolve and increase. 

With all this in mind, let’s examine five reasons organizations of all sizes, including small businesses, need cyber insurance coverage.

1. Your business is a potential target for cyber attacks

As cyber threats become more sophisticated and payouts grow bigger and bigger, threat actors are growing more confident and more persistent in their methods. As a result, everyone is in their crosshairs. You, your business, your network — everyone is a target. Cyber criminals have a hammer, and they’re looking for a nail wherever they can find one.

If threat actors are able to get higher payouts by attacking large enterprises, why do small businesses need cyber insurance? Simple: Instead of having to breach each network manually, bad actors can cast a much wider net by automating attacks and then focusing their attention on the weakest networks and computer systems, regardless of who owns them. 

With every additional attack attempt, threat actors increase their chances of success. Couple this with the fact that many businesses have weak security controls — particularly companies with distributed teams that were forced into remote work due to the pandemic — and it comes as no surprise that ransomware attacks and funds transfer fraud incidents have increased 54% and 40% respectively, according to Coalition’s 2022 Cyber Claims Report.  

If your business got attacked, what would you do? Would your organization be able to operate entirely offline? How much revenue might you lose if your systems were down for an extended period of time? How might your organization’s reputation be impacted if personal data were stolen?

When it comes to a theoretical cyber attack, there’s an endless amount of questions to consider. But until your organization is breached, perhaps the most important question is this: What security controls does your organization have in place to protect your critical systems and most sensitive information?

In addition to implementing robust security controls and authentication methods, executives and small business owners should also develop an incident response plan that helps ensure the organization is back up and running as soon as possible in the event an attack occurs. This is one area where partnering with the right cyber insurance provider can be particularly helpful.

2. Your business relies on technology

Technology powers your business, increasing productivity and accelerating innovation. But it also creates risks, which organizations need to protect against. Essential tools — like emails, chat platforms, online payment platforms, social media accounts, and even calendars — are easily exploited. While these tools make it much easier to do business, they expose the organizations that use them to potential risks. Should threat actors get access to critical systems like VIP email accounts or company chat platforms, the results can be devastating.  Year over year in Coalition’s cyber claims data we see businesses lose an average of nearly $100,000 per phishing attack and incur even higher costs for a  funds transfer fraud (FTF) incident. Making matters worse, in the age of remote work, many distributed teams are relying on collaboration tools delivered through the cloud that can be easily exploitable, much to the delight of bad actors who launch ransomware attacks after gaining access to them. Unfortunately, such attacks end up costing businesses an average of $300,000. Think about the technology your business relies on. Do you interact with customers, employees, and vendors through email, messaging, and collaboration platforms? Is any sensitive data passed through those mediums? If so, who can access it? If your business uses online banking, what controls are in place around invoicing and wire transfers? While your business can’t entirely eliminate potential risks associated with technology, you can make smart moves to mitigate potential risks. With a comprehensive cyber insurance policy in place, the damage will be minimal in the event a bad actor breaches your network, and you’ll be able to resume operations in short order.

3. Cyber insurance is a lifesaver in the event your business is attacked

No matter how strong your organization’s cybersecurity stance is, methods are constantly evolving and becoming increasingly sophisticated. Even if you made sure every employee was thoroughly educated on the importance of cybersecurity and how to identify common social engineering attacks, threat actors may target your networks in an entirely new way. When this happens, your cyber insurance provider is there to help you respond and resolve the incident as quickly as possible, and help to minimize your potential losses. While leading cybersecurity tools can prevent bad actors from accessing company systems, they are only the first step in mitigating and managing cyber risk. Security can also fail for myriad reasons — including human error and unpatched third-party software vulnerabilities. What’s more, if your business is relying on third parties to maintain IT and security, that’s just another potential source of risk you don’t have any control over. In addition to tools, organizations need cyber security awareness training and insurance layered on top of it to provide comprehensive protection. Suppose just a single employee isn’t up to date on the importance of protecting against phishing and ransomware attacks and doesn’t know how to identify one. In that scenario, it’s only a matter of time before the need for continuous cybersecurity training becomes excruciatingly evident. After all, clicking on a single phishing email can have disastrous impacts. Since it’s only a matter of time before your people, your tools, or your partners will be exploited, you need cyber liability insurance to make sure such an occurrence doesn’t prevent your organization from continuing to fulfill its mission.

4. Your traditional insurance policy isn’t enough to cover cyber risks

You might think that your traditional insurance policy would protect you from cyber incidents, but you’d be wrong. Not all insurance is created equal, after all. Despite what you’d like to think, your current general liability (GL) insurance policy might not cover the costs of a cyber attack. In fact, most traditional packages only cover third-party costs, leaving organizations with coverage gaps that can put massive dents in the bottom line. Luckily, bridging those gaps is a breeze with cyber insurance. Leading cyber liability insurance packages offer holistic coverage, including first-party expenses. At the same time, organizations can also gain access to active risk management tools and services designed to reduce the likelihood of loss by preventing breaches from happening in the first place. Does your current cyber coverage protect you against immediate out-of-pocket expenses (i.e., costs your organization incurs) related to a breach response? Is your current cyber policy designed to protect your organization’s most valuable digital and financial assets? If you can’t answer those questions in the affirmative, your coverage likely won’t be able to provide comprehensive protection against most cyber incidents.

5. You can’t afford not to have cyber liability coverage

Would a $1 million ransom demand put your company out of business? What about a $5 million demand — like what Colonial Pipeline paid out after being on the wrong end of a cyber attack in May 2021? When a cyber incident occurs, response and recovery costs can go through the roof rapidly as legal, technical, forensics, and business interruption expenses multiply. As our 2022 Cyber Claims Report reveals, ransomware attacks are expensive, with costs climbing 10.5% over the last few years. Today, the average attack sets a company back $330,000. Few businesses have that kind of money to spare. And even if they did, shareholders, investors, and other stakeholders would agree the money could be put to better use.  Unfortunately, some decision-makers believe that cyber insurance is too costly to the point they can’t afford it. In reality, the opposite is true: companies can’t afford not to buy it. When you partner with the right cyber insurance provider, you’ll be able to customize your coverage to satisfy your organization’s unique risk exposure and business needs. When cyber attacks occur, every minute matters. When organizations lack the in-house resources necessary to swiftly recover from a cyber incident, remediation costs skyrocket because resolution takes more time. To accelerate response, companies also need to be aware of vendor service-level agreements (SLAs) or contracts that define each party’s obligations in the event a cyber incident happens. That way, everyone will know exactly what’s expected of them when an incident strikes, which should help keep potential losses to a minimum. By adding a comprehensive cyber insurance policy on top of this, you can rest comfortably knowing that your investment is delivering ROI because your systems, data, and brand reputation are protected — and your employees and customers are happier because of it.

Why cyber insurance is worth it

According to Coalition’s claims data, the average cost of a ransom demand continues to hover around $1 million. If your business was hit with ransomware, would you be able to respond to this type of demand, or even know how to get started negotiating with the threat actor? Without cyber insurance, a cyber incident could put your company out of business for good. On the flip side, having a comprehensive policy protects your business against financial and reputational risk by covering:

Additionally, leading cyber insurance policies also offer protection against third-party liabilities, including:

  • Network and information security liability

  • Regulatory defense and penalties

  • Multimedia content liability

  • Payment Card Industry (PCI) fines and assessments

  • Third-party bodily injury and property damage

  • Technology errors and omissions 

How can you buy cyber insurance?

Deciding to buy cyber insurance is a step in the right direction. But unless you’re keen on engaging an insurance company yourself, you may be best off asking your insurance agent whether they’re a Coalition-appointed broker. If they are, they can start conducting a Cyber Risk Assessment and get a quote from Coalition — ensuring you get coverage that works best for your business. Instead of waiting for an attack to happen before taking action, your business is best off taking a proactive approach to cybersecurity and working with an active cyber insurance provider that works hard to prevent incidents before they happen. This is exactly why Coalition built Control, a free automated scanning and monitoring solution that identifies organizational risk and recommends how to control it. To learn more about how Control can help your organization improve its cybersecurity stance, sign up now.