7 Pros & Cons of Cyber Liability Insurance
You’ve probably realized how reliant you are on digital devices and online transactions and are looking for ways to protect your business in case of cyber-attacks.
A cyber liability insurance policy can help protect your business from financial losses from data breaches, cyber-attacks, and other online threats.
Yet Intelligent Technical Solutions (ITS), a managed security services provider (MSSP) with over 20 years of experience, knows cyber liability insurance isn’t always at the forefront of a company’s priorities.
So, in this article, we invited Ed Griffin, ITS’ Partner and cybersecurity expert, to explain its advantages and disadvantages.
At the end of this article, you can make an informed decision about whether it's right for your business.
Pros of Cyber Liability Insurance
So, what are the benefits of getting cyber liability insurance?
1. Protection Against Financial Losses
One of the most significant benefits of cyber liability insurance is that it provides protection against financial losses resulting from cyber-attacks.
“Cyber liability insurance is going to help with the post-incident recovery of your business operations,” Griffin said.
For example, if your business has sensitive customer information, you could face significant data breach costs associated with notifying affected customers, credit monitoring services, and potential legal fees. Cyber liability insurance can help cover these costs and any business interruption losses resulting from the attack.
2. Legal Protection
Another benefit of cyber liability insurance is legal protection. In the event of a cyber-attack, your business could be held liable for damages resulting from the breach.
Cyber liability insurance can help cover the costs associated with legal defense, settlements, or judgments against your business.
3. Mitigates Reputational Damage
A cyber-attack can do more than just cost your business money - it can also damage your reputation. Cyber liability insurance can provide the resources you need to repair your company's image after an attack.
This could include public relations services, crisis management support, and other reputation management tools.
4. Compliance with Industry Standards
Cyber liability insurance can help your business stay compliant with industry standards and regulations. For example, if your business is required to comply with HIPAA, PCI-DSS, or other data security regulations, a cyber liability insurance policy can help ensure that you're meeting the requirements.
Managed service providers (MSPs) also increasingly require their clients to carry cyber insurance. Since cyber insurance plays a huge role in industry regulation compliance, it’s becoming more common for cyber liability insurance to be part of the onboarding process.
Cons of Cyber Liability Insurance
It’s not all sunshine and roses when it comes to this service. Here are different disadvantages you’ll face if you get cyber liability insurance:
1. High Cost
One of the most significant drawbacks of cyber liability insurance is the cost. Cyber liability insurance might not be worth it, depending on the size of your business and the level of coverage you require.
Especially for small businesses with limited budgets, the cost of cyber liability insurance may be prohibitive.
Griffin urges companies to undergo a BIA (Business Impact Assessment) to really see the value a cyber insurance policy. This involves:
- Analyzing your company’s critical systems
- Discovering how much revenue loss will happen if systems go down
- Pinpointing how much productivity you’ll lose
- Estimating how long it’ll take to get everything up and running
(Luckily, you can skip the headache of doing this manually and use a downtime calculator instead.)
“You need to compare the cost of the BIA against the cost of these other expenses on their recovery side of a major incident,” he said. “Then look to see the cyber insurance premiums and check if it balances out. Does [cyber insurance] lower the risk of financial destruction?”
2. Coverage Exclusions and Limitations
How much coverage do you need, and are you sure you’re getting exactly what you want? Griffin pointed out that cover limits are another drawback of cyber liability insurance.
Depending on the policy you choose, there may be limits on the amount of coverage you can receive for certain types of losses. Your insurance policy may not cover all your financial losses if you suffer a major cyber-attack.
“So, if a company goes out and gets $1,000,000 in coverage, but it turns out their recovery takes $3,000,000, they’re still in trouble,” he said. “They haven't really done themselves any good.”
Always carefully review your policy and understand what is and isn't covered before you purchase a cyber liability insurance policy.
3. False Sense of Security
Finally, one potential downside of cyber liability insurance is that it can create a false sense of security.
While cyber liability insurance can help protect your business from financial losses resulting from cyber-attacks, it's not a substitute for strong cybersecurity practices. In fact, some insurers may require companies to have certain cybersecurity protocols in place before they issue a policy.
It's essential to remember that cyber liability insurance is just one piece of a complete cybersecurity strategy.
Pros and Cons of Cyber Liability Insurance: A Quick Look
Protection against financial losses
Coverage exclusions and limitations
Mitigates reputational damage
False sense of security
Compliance with industry standards
Are you ready to get cyber liability insurance?
At the end of the day, cybersecurity experts still recommend getting cyber liability insurance.
“You have to assume that something bad will happen, right?” Griffin explained. “Attackers are just way too sophisticated, and there's too much economic incentive.”
Cyber liability insurance is still essential for protecting your business from the financial losses that can result from cyber-attacks.
Here at ITS, we always err on the side of caution when it comes to our clients’ cybersecurity. It’d be negligent of us to overlook cyber insurance as part of a holistic cybersecurity program.
If you want to learn more about cyber liability insurance, check out the following resources:
- 6 Things to Prepare for Cyber Insurance, and Why They're Important
- How to Choose the Right Cyber Insurance for Your Business
- How Much Cyber Insurance Does Your Business Need?
But if you want specific feedback regarding your company’s cybersecurity and the role cyber insurance will play in it, get a free cybersecurity assessment today.