What is Cyber Insurance?



As vast amount of business information is stored on standalone work stations, internet and now the cloud, businesses from across the globe are exposed to high risk of information breach. In the past, many mid-sized and even large scale companies have suffered losses amounting to millions of dollars due to planned cyber crimes or system malfunctions, where confidential information was accessed or worst, destroyed by hackers, competitors and others. Many businesses have been left handicapped for many days at a stretch, unable to operate or lost accountability among their customers due to virus attacks that are usually written and directed at certain targets with just one goal – to hurt companies and mock their IT security systems. This is where Cyber insurance can help businesses to protect their interests against information and data loss.

Basics of Cyber Insurance

Cyber Insurance is the coverage for liability resulting from unauthorized access and use of electronic data and software from the network of the business. This insurance also covers liability claims for spreading malicious virus, computer theft, or any other ‘unintentional’ act that may originate from the business network.

Very few businesses, with active online operations or multiple works stations and servers connected to the internet are aware of the fact that a typical business insurance policy covers only tangible assets; electronic data is not covered under such policies. As businesses are increasingly relying on networked systems, cloud services, external data centers etc., they are also exposing themselves to the unavoidable evil of online threats.

The concept of Cyber Insurance takes into account both the first party and the third party risks. It covers various possible hazards including privacy risks, infringement of intellectual rights, virus transmissions and any other problem that has been passed on from the systems or networks owned and operated by the first party to a third party, risking their data and information and hence making the former legally responsible for compensating the latter for the loss, theft or distortion of data.

When Does A Business Need Cyber Liability Insurance?

Any business that communicates to clients and/or transacts online should investigate whether they require cyber insurance.

Businesses with an e-commerce website are in particular need of Cyber Insurance.

Cyber insurance  policies are built around the needs of specific businesses. For different businesses varied cyber insurance policies are needed. For example, an online retailer will need a cyber insurance with extensions  to safeguard the personal information of the customers, who shop products online by using their debit/credit cards and perhaps also network interruption insurance and cyber insurance.

At the same time, companies such as brick and mortar retailers for example, may  require base  cyber insurance to cover personal and corporate data liability, outsourcing, data security and defense costs.

Before signing on the dotted line for a Cyber Insurance Policy, you must consider factors such as size of the business, type of data stored, type of records maintained (medical records, employee records, school records etc.), estimated number of customers and several other economical pointers.

With the number of businesses investing heavily to build a strong online presence, communicating and transacting online  going up at a steady rate, hackers, data thieves and others writing malicious codes and programs are working overtime too! With the advent of the cloud technology and its large scale adoption by the businesses for consolidated IT infrastructure, risks of security breach have also increased manifold.

Why Do Businesses Need Cyber Insurance?

If high profile organisations  on the internet, such as LinkedIn, eHarmony, and Yahoo can get hit hard by cyber attacks, businesses with no world class firewalls or logical security barriers are certainly not immune to such attacks. When companies with worldwide operations and millions of users were at the receiving end, personal information of millionsof users was stolen away by hackers, and it cost them millions of dollars in compensation. To make it worse, they also lost the credibility to protect the sensitive user data.

As larger organisations improve their defenses against cyber attack it leaves small and medium business as vulnerable targets.

Imagine what would happen if your business had to suffer such huge losses due to information breach? The worse news is that liability for the loss of employee and customer data are not covered under typical general business insurance policies. Sometimes, liability policies may offer to cover such losses, but there is big gap between what policies cover and what you finally get for the loss incurred.

A myth that is quite prevalent among business owners is that cyber insurance is only needed by ostensibly high profile and high risk companies, while small and medium size businesses can afford not to investin it. In 2012, 72% of the data breachesthat took place affected small, medium businesses and such stats should provide some food for thought to everyone.

Bigger companies may appoint entire departments for analyzing all kinds of risks their business in susceptible to, but for smaller companies a necessary precaution is to invest in Cyber Insurance.

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