Cyber security has been a hot topic of discussion for businesses in the last few years, thanks to infamous data breaches like the incident with Target in 2014 or Experian in 2017. One of the biggest questions on everyone's mind is how to defend against cyber crime in general, and especially data breaches.
Many companies - large and small - are looking to cyber security software to keep them safe and minimize risk. This is a good idea, but statistics show that both the amount of data stored in the cloud and the number of cyber crimes committed are rising. Unfortunately, cyber criminals are wise to the measures businesses and individuals are taking. Businesses, especially smaller ones, should consider the benefits of cyber liability insurance as part of a backup plan in the event that their security measures fail.
What is cyber liability insurance?
Cyber liability insurance is a specific type of insurance policy that is meant to protect businesses and individuals from internet-based risks, such as data breaches or cyber crimes.
Generally speaking, there are two levels of coverage under these policies. The first is first-party coverage, which covers the direct losses a person or an organization suffers. The second is third-party, which takes care of legal actions or claims brought against the company by its partners or customers.
This sub-category of insurance may also be referred to as cyber insurance or cyber risk insurance.
How it benefits small businesses to have cyber liability insurance
With all of the incidents in the news in the last few years related to large businesses, small business owners may feel like they are less of a target for data breaches or cyber crimes, but this is not necessarily true. Verizon's 2018 Data Breach Investigation Report actually shows 58% of the victims in incidents reported to them in 2017 were small business owners.
That is more than half of the cases reported to Verizon. Clearly, there is a need. But how does cyber insurance benefit small businesses?
1) It acts as a second line of defense.
In the age of the internet, no business should be without a cyber security system in place. Clients and customers entrust their private information, including credit card and bank account information, to the businesses they work with. Once they give it out, they expect their business partners to protect that information as if it were their own.
No system is perfect, however. Cyber liability insurance can act as a second line of defense if cyber security is breached by allowing business owners to offer remedies once it has occurred.
2) Your business will not get wiped out.
As many businesses who have fallen victim can tell you, it gets expensive to deal with the fallout from these incidents. Potential costs include:
- Fines imposed on your business or claims filed against it
- Lost business on days you are closed down to investigate what happened and the extend of the damages
- Lost sales due to the damage to your business's reputation
- Installing new security systems or updating the systems already in place
- Goodwill gestures like free credit monitoring for a certain period of time for customers and extra discounts and service promotions
For small businesses, it can be a fatal blow. In 2016, Small Business Trends reported that 60% of all small businesses that are on the receiving end of a cyber crime or data breach go out of business within six months of the incident occurring. No one wants it to be them, but it happens.
While having an insurance policy will not prevent events like these, you can focus on figuring out what happened and how to make things right with your customers and business partners.