Enterprises, governmental bodies, and nonprofits of all sizes rely on information technology to conduct their day to day operations. This can encompass systems such as the intranet, servers, e-commerce, cloud computing, and more. Any interruption to the IT framework or breach of data due to a cyberattack could inflict substantial damage to an organization’s business, financial transactions, and standing. It is incumbent upon organizations to safeguard sensitive data in consideration of their clients, investors, and staff. Inadequate data protection measures may lead to a loss of trust, regulatory penalties, legal disputes, and in extreme cases, criminal charges.
What is Cybersecurity Insurance?
A cyber insurance policy aims to mitigate an organization’s exposure to the risks associated with a cyber attack. Such insurance policies offer protection to the insured in the event of a cyberattack leading to data loss or the breach of confidential information. According to Fortinet, depending on the specifics outlined in the policy, the insured may be reimbursed for:
- Restoring the personal identities of affected customers
- Compensation for business interruption resulting in income loss
- Communication expenses with clients, customers, employees, and other stakeholders
- Civil fines and penalties
- Liability related to security and privacy breaches
- Network interruptions
To ensure affordability and adequate claim coverage, insurance companies pool together a large number of customers. This strategy helps distribute the financial impact of high-risk organizations across a broader base.
Why Do You Need Cyber Insurance?
Similar to traditional insurance, cyber insurance is designed to offer financial support in the aftermath of a catastrophe. Many organizations lack the necessary capital to cover losses stemming from cyberattacks, such as those impacting data centers or intellectual property. In recent years, cybercrimes, particularly ransomware attacks targeting companies, governments, and healthcare entities, have surged. With the onset of the COVID-19 pandemic, cybercriminals have capitalized on the changes in the business realm, intensifying attacks across all sectors. Despite an organization’s cybersecurity measures aimed at fending off attacks, there are instances where controls may falter, or additional protection may be desired. Cyber insurance can serve as a buffer, particularly for the substantial costs associated with recovering from an incident. When deliberating on whether to invest in cyber insurance, organizations should weigh the cost of coverage against the potential cost of a cyber attack.
How Does Cyber Insurance Help Manage Risk?
Cyber insurance provides financial protection to organizations in the event of a cyberattack or data breach, covering expenses such as legal fees, notification costs, and potential loss of income resulting from the incident. Any organization contemplating the purchase of cyber insurance should engage with its information technology and risk management departments, along with other advisors like brokers who specialize in cyber insurance. Collaboratively, they should gauge the risks associated with a cyber attack and assess the potential benefits of a cyber insurance policy. This assessment would include factors such as the insurance policy’s deductible, premium, coverage limit, and terms of coverage.