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Cyber Insurance: What It Covers & Why Every Business Needs It

The unprecedented increase in data hacks will motivate you to finally buy business cyber insurance.

The numbers are incredible. 

According to the report U.S. Identity Theft: The Stark Reality published by the Aite Group, almost 47 percent of people in the United States were the victim of a financial identity theft in 2020. That’s almost one out of every two people. The losses from cyber identity thefts totaled $502.5 billion in 2019 and jumped 52 percent to $712.5 billion in 2020. Losses are forecast to top $720 billion in 2021.

The study focused on application fraud, which is when criminals open new fake accounts using stolen personal data to commit financial fraud or takeover someone’s actual accounts by using hacked passwords and personal information to steal money or access their rewards, such as airline mileage points.

In this article, we’ll profile the top three business insurance companies that offer small business data breach coverage and explain what makes each one unique. Then we’ll cover everything you need to know to get the cyber protection your business needs at a fair price.

The cyber risk to businesses

The bad news for businesses is that while some of the data used in the financial thefts was stolen from state unemployment agencies, the vast majority of it was acquired when cyber thieves hacked into business data systems.

As companies increasingly depend more and more on electronic data and computer networks to conduct business, larger amounts of personal, financial and medical information are being stored online, just waiting for hackers to steal it. When data is breached, the business involved can be exposed to enormous liability. The costs to recover can be huge and many small businesses that get hacked never recover. They can’t afford to pay costs associated with a data breach out of pocket.

Data breaches will continue to be a major threat to businesses of all sizes in the years ahead. Prominent data thefts, like the one at Microsoft earlier this year where more than 250 million customer records were compromised often make the news. More than 30,000 businesses and other organizations have been left vulnerable by that breach.

If you ever received an odd email asking you to click on or download something, you were likely the target of a cyber hack, most likely a ransomware attack that uses malware to hold business data hostage until the company makes a ransom payment to release it. Even for small businesses, ransom demands can be in the six or seven figures. 

More bad news for businesses: The number of ransomware attacks has doubled every year for the last three years. According to Cyber Security Ventures, a business or other organization is the victim of a ransomware attack every 11 seconds. 

While it’s the big company breaches that make the news, hackers are almost as likely to target smaller organizations. They typically have fewer cyber security protections in place and are easier marks.

According to fundera, a NerdWallet company:

  • 43 percent of cyber attacks target small businesses
  • 60 percent of small companies that are victims of a cyber attack go out of business within six months
  • There was a 424 percent increase in small business cyber breaches last year.

Repeating what we said earlier: The numbers are incredible.

How businesses can protect against cyber crimes

So, what can vulnerable small businesses do to protect against this growing threat?

They must take steps to protect their data. And since cyber crooks are constantly getting smarter and more sophisticated, and no data protection system is bulletproof, they should make it a top priority to get specialized coverage to protect them against financial losses related to data breaches and other cybersecurity threats.

What is cyber insurance?

It is specialized coverage that protects businesses from the risks associated with their increased dependence on technology. This can include everything from data breaches to hacking to ransomware attacks.

In most cases, insurers allow companies to add cyber coverage to their business insurance policies. Most insurers offer two types of cyber insurance policies: data breach insurance and cyber liability insurance.

  • Data breach insurance helps small businesses respond to breaches.
  • Cyber liability insurance is typically purchased by larger organizations and offers a higher level of coverage to help prepare for, respond to, and recover from cyberattacks. More and more smaller businesses take advantage of this coverage because of the growing number and size of cyber crimes against smaller organizations.

Who needs cyber liability insurance or data breach coverage?

If you answer YES to any of the following questions, you probably need data breach or cyber liability insurance:

  • Does your business collect, store, send or receive sensitive personal or health-related information?
  • Do you work in an industry that has rules about handling customer data, such as healthcare, education and finance?
  • Are you unable to cover the costs of responding to and recovering from a cyberattack if one happens to your business today?

Being the victim of a cyber crime is becoming a more real possibility for small businesses every day. The time to protect yourself is now.

Why businesses need cyber liability insurance or data breach coverage?

Hackers target the personally identifiable information (PII) or personal health information (PHI) businesses store on their computers, servers and other electronic devices. It’s the reason why it’s critical to protect your business with data breach or cyber liability coverage, which can help you respond quickly after a data breach or cyberattack. Some examples of things this insurance cover include:

  • Your company’s computers are infected by a virus delivered in an email from a hacker that exposes private, sensitive client, employee, and business data.
  • A customer or patient sues you after your business is hacked and their personal or medical information is stolen and used to do harm to them.
  • You have to pay a public relations agency to rebuild the reputation of your business after a data breach.

What’s the difference between cyber liability and data breach insurance?

The two types of insurance cover different sized businesses. Here’s an overview of each.

What is data breach insurance and what does it cover?

This coverage helps you respond to a breach if personal client or employee data, patient health records or business information becomes compromised or is lost or stolen. Small businesses are covered whether they are the victim of a cyber crime or an employee’s laptop or other electronic device is lost or stolen and then gets hacked.

If your small business becomes a victim of a cyber crime, data breach coverage can help pay to:

  • Notify impacted customers, patients or employees, which can be costly and is a requirement in most states
  • Offer credit monitoring services to data breach victims, which is also a requirement in many states, so they can find out if they’re compromised information has been used in a financial crime against them
  • Hire a public relations firm to help rehabilitate its reputation.

Extra coverages that can be added to a small business data breach policy include:

  • Business income and extra expense coverage which can help replace lost income if your business can’t operate because of a data breach
  • Prior acts coverage, which covers claims related to a breach that occurred before your policy went into effect and you weren’t aware of it
  • Extortion coverage, which helps cover the amount of ransom you have to pay to retrieve your business data if your company is the victim of a ransomware attack.

A small business insurance expert can advise you on the types and amounts of coverage you need.

What is cyber liability insurance and what does it cover?

Cyber liability insurance is typically purchased by larger businesses, although more and more mid-sized ones are getting this enhanced level of protection because of the greater threat of larger cyber crimes.

It helps cover financial losses resulting from cyberattacks or other tech-related risks, as well as privacy investigations or lawsuits following an attack. 

Example: If a cyber criminal virtually breaks into your business, locks your computers, threatens to delete your files and demands a ransom, cyber liability insurance can help you respond to the attack, cover the ransom, pay to recover deleted files and replace lost income.

If a business is the victim of a cyberattack, cyber liability insurance can help cover:

  • Legal services to help you meet required state and federal regulations
  • Notification expenses to alert impacted customers, clients, patients and employees that their personal information was compromised
  • Ransom paid to release locked files in a ransomware attack
  • Lost income because of a computer network outage
  • Costs of lawsuits by customers, patients or employees because their personal information was compromised
  • Fines from state and federal agencies.

An experienced business insurance agent can help you figure out whether your business qualifies for cyber liability insurance.

What is not covered by data breach or cyber liability insurance?

These two coverages protect against a lot of technology related risks. However, they will not pay for physical damage to — or the theft of — a piece of computer equipment. You will need commercial property insurance to cover that. Data breach or cyber liability insurance will only cover the data related aspects of that theft.

How much does cyber insurance cost?

The cost can vary because it’s based on many factors including:

  • Number of customers, clients, patients and employees
  • Type of sensitive data and information you store and how you store it
  • Your business industry 
  • Cyber claims history
  • Data protection efforts
  • And more.

Your business insurance agent or a representative at your business insurance company can provide you with a quote. It’s usually a good idea to get multiple quotes from different providers and compare them to find the right coverage at the best possible price.

Top 3 providers of cyber insurance protection

The top 3 cyber insurers in the United States are:

  • Travelers: Best with its CyberFirst product that can serve several business types
  • THREE: One of the few all-in-one business insurers that offer cyber coverage
  • Hiscox: Best for small businesses with unique cybersecurity insurance needs

Travelers: Best with its CyberFirst product that can serve several business types

Travelers is one of the leading business insurance providers in the US. They offers a wide variety of coverage options for small businesses all the way up to Fortune 500 companies. It offers broad cyber liability coverage and expense reimbursement. You can find the CyberFirst program geared specifically for technology companies or public entities. It also offers a CyberFirst Essentials package for small businesses.

The CyberFirst Essentials product can be offered together their Business Owners Policy (BOP) product. Both are for small businesses. CyberFirst Essentials protects small businesses against data breach incidents. It covers the following costs to minimize the impact a data breach can cause to a small business.

  • Breach notification to customers
  • Credit card monitoring services
  • Costs to retain a public relations consultant to help restore your reputation
  • Consulting and forensic fees to identify and resolve the cause of a data breach
  • Defense and settlement costs if you are sued for alleged failure to prevent unauthorized access to, or use of, personal information

If you are interested in having this coverage from Travelers, you have to work with one of their agents.   

THREE: One of the few all-in-one business insurers that offer cyber coverage

If you prefer a single source for all your business insurance coverage, THREE could be the solution for you. It protects all aspects of a business, including people, property and operations, in a single comprehensive business insurance policy. It’s one of the few single-stop insurers that offers cyber protection as part of its package.

THREE makes protecting a business easy

You can also rest assured knowing that THREE is a part of the solid and established Berkshire Hathaway family of companies.

Hiscox: Best for small businesses with unique cybersecurity insurance needs

Hiscox offers a complete array of business coverages and is a leading insurer that exclusively offers small business insurance. 

Hiscox makes it easy to purchase all types of business protection online, including data breach coverage. You can also speak with experienced business insurance experts who can help you customize your coverage, including cyber protection, to meet your unique company needs. Hiscox also offers top tier service, provides fast quotes, instant coverage and quick claims processing.

If you choose Hiscox for your business coverage, you can rest assured knowing you’re entrusting your organization to a firm that’s been in operation since 1901. More than 400,000 companies choose Hiscox for their coverage.

>>MORE: Best Cyber Insurance Companies

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