The growing number of cybercrimes have made data breach and cyber insurance policies must for organizations that collect and store customers’ confidential data. A security breach doesn’t just cause a financial loss but can have a detrimental effect on your business’ reputation. For instance, the 2017 breach of Equifax resulted in a severe information leak, where the sensitive data of over 147 million people was compromised. People often ignore data breach insurance thinking about how it would affect a small organization.
Usually, security breaches take place in large-scale companies where the data of millions of customers is at risk. However, recent studies and investigations have shown that even small businesses are not completely secure. In fact, small and medium-sized businesses are the attacker’s biggest target as these organizations do not have the best defense systems in place. Let’s see how having a data breach insurance can help.
Understanding Data Breach Insurance
Data breach occurs when a third party, usually an outsider, gets access to restricted data. It’s part of a cyberattack, in which the attacker can launch malicious software in your system. They can also conduct a social engineering attack, where they trick you into believing that they are authentic or a part of your organization. However, data breach also covers insider attacks. If a person from your organization, say an employee or a member from a specific department, gets unauthorized access to your confidential data and uses it for malicious purposes, it will be considered an insider attack.
Data breaches can wreak havoc on your company and its reputation. The attacker can ask you to fulfill their ransom demand or they might simply misuse the information to steal from your customers. Restoration of data, as well as, legal fees can cost you hundreds of thousands of dollars, not to mention the reputational damage that requires PR to be fixed. Data breach insurance can save you the financial expenses that can otherwise affect your financial stability.
Also read: What is Business Interruption Insurance?
Data breach insurance can be sold separately or as an add-on for an existing insurance policy.
Who Should Get Data Breach Insurance?
Businesses of all types and sizes need data breach insurance. However, companies that store personal data, such as customers’ credit card information, their bank account details, social security numbers, and other sensitive information are at an increased risk of data breaches compared to small retailers and regular grocery stores. Simply put, businesses that work with data that helps identify a person are more likely to encounter a data breach than others.
Professional service providers, like healthcare specialists, should also consider getting a data breach insurance policy, as they record patient’s sensitive data, their Social Security Number, phone number, medical history, treatment, credit card details, and other personal data. Other than that, IT service providers or any individual working in the technology sector, such as app development, software development, etc. should get data breach insurance.
What Does the Data Breach Insurance Cover?
The first thing that comes to our mind when we think about data breaches is hacking. However, a data breach can cover a lot of things. It’s advisable to go through your insurance policy carefully to check whether or not it covers all aspects of a breach. Here’s what a standard data breach insurance policy covers:
- Data breaches conducted by employees within your organization, also called insider attack
- Data breach that occurs due to employee negligence
- Phishing attacks
- Ransomware attacks
- Social engineering attack
The insurance covers the cost of notifying customers about the breach, determining the cause of the breach, paying ransom to prevent the hacker from leaking the information to the public or locking you out of your system, and revenues you lose due to the temporary closure of your business, restoration of your data, and so on.
Do not confuse data breach insurance with cyber liability insurance. Although they might offer the same coverage, there are notable differences you should know before choosing.
First and Third-Party Data Breach Insurance
Cyber liability insurance covers the claims made by third parties against your company for not implementing network security measures, which resulted in a security breach for them. Data breach insurance, on the other hand, is the first-party coverage for the company that experiences a data breach. Simply put, if your own company suffers from a data breach due to a malware attack or ransomware, the data breach insurance policy will cover the financial cost of notifying customers and addressing the cause of the breach, plus, any damage that occurs to your organization due to the attack.
If you offer technical or security services to your clients, you might need more comprehensive coverage, such as a cyber liability insurance plan. It covers the cost associated with third-party claims. If your client experiences a cyber attack or any security issue because of your services or lack of an effective defense mechanism, you will be responsible for compensating them for the damage that occurred. They can also sue you, which might lead to a court fee, settlement and judgment fee, and penalties.
In most cases, the first-party data breach insurance is sufficient. It pays for the damages that occur to your organization from security breaches. However, if you offer technical services to outsiders, it’s always better to consider getting third-party insurance.
What’s Not Covered By the Policy?
Cyber liability or data breach insurance policies cover all kinds of financial losses you experience because of cyber crimes. It doesn’t cover bodily injury that occurs to an employee while they are working, your goods getting stolen, property damage, accidents, and other liabilities. For these, you need general liability, worker’s compensation, commercial automobile, and other suitable insurance plans.
A data breach insurance can save you from financial losses and reputational damage that occur due to a cyber attack. If you work with customers’ sensitive data, it’s important to get data breach insurance to ensure protection against such liabilities. Always compare different insurance plans and choose the one that fits your budget and needs.