Almost every day, you read about a major data breach at a business, financial institution, or school. Costs from these breaches have influenced cyber insurance rates. But a cyber insurance policy can be critical to managing your company's risk.
Most businesses would have a hard time meeting all their liabilities from a cyber event without insurance. Fortunately, sound technology can help you manage your cyber liability insurance cost. And Denver corporate lawyers can develop solid policies and allocate risks with partners to mitigate the costs of cyber insurance policies.
What Is Cyber Insurance?
Cyber insurance provides a few types of coverage against cyberattacks and other data breaches.
This type of insurance is similar to property insurance. Cyber insurance protects your servers and data from cyber disasters the same way property insurance protects your property from physical disasters.
It also protects against any computer-related liabilities you face. Cyber liability insurance covers your liability to customers for data breaches the same way property liability insurance covers your liability to customers for slip and fall accidents.
What Types of Businesses in Denver Need Cyber Insurance?
Since cyber insurance policies provide two types of coverage, almost every business can benefit from shopping the cyber insurance market.
Small businesses and start-ups are particularly vulnerable to cyberattacks since new companies need time to train employees. A Denver startup lawyer can help new companies develop computer policies.
Businesses with proprietary data — like software developers, engineers, or manufacturers — will benefit from cyber insurance coverage for data breaches.
Companies with private customer data need protection from cyber liability claims, including:
- Hospitals and dentist offices
- Law offices
- Financial institutions
- Accounting companies
Any business that processes customer payments also needs cyber liability insurance.
Why Buy Cyber Insurance?
A data breach can happen in many ways, including:
- Mishandling of credentials or data
- Phishing attacks
- Viruses and other malware
- Ransomware attacks and cyber extortion
You will need to read the policy to determine which breaches are covered.
Cyber insurers pay benefits when you suffer a covered loss. Losses from a data breach include:
- Data recovery costs
- Expenses to identify and fix the breach
- Costs of notifying customers of the breach
- Ransom demand payments
- Business interruption expenses
One of the most significant costs of cyber threats occurs when customers lose data, and your equipment, policies, or employees are to blame. Customers could pursue negligence lawsuits against your business.
Depending on the nature and scope of the cyber incident, your business could be liable for significant losses. If you have a cyber insurance policy, the insurance company covers these losses.
What Is the Average Cost of Cyber Insurance?
Cyber insurance rates depend on many factors, including:
- The size of your business
- The type of data you possess
- Your history of being targeted in cyber incidents
Bear in mind that insurance companies will offer policies with different limits and deductibles. As a result, the insurance premiums could vary widely. But the typical cyber insurance costs will range from a couple of thousand dollars to tens of thousands of dollars per $1 million in coverage.
What Are the 6 Cyber Insurance Rating Factors?
Cyber insurance providers have increased cyber insurance rates in the past few years. These rate increases were implemented by the cyber insurance industry in response to increased risks of cyber attacks. Some factors causing cyber insurance rates to increase include:
1. Increased Frequency and Severity of Cyber Attacks
Businesses have a higher risk of suffering a cyber incident than they did just a year or two ago. Part of this increased risk simply reflects a greater number of hackers. As the world becomes more connected, cybercriminals working in every country in the world can attack targets in every country in the world.
This increased risk also comes from the increased sophistication of hackers. Large criminal enterprises, including — allegedly — state-sponsored hackers, have the resources to attack large companies like energy businesses and financial institutions.
2. Large Payouts from Ransomware Attacks
Ransomware attacks have increased in frequency. But more importantly, extortionists are targeting larger companies and asking for more money. According to an analysis by cyber security experts, the average ransomware payment was over $500,000 in 2021 and will only increase in the future.
A few factors have fueled this increase. Bitcoin and other cryptocurrencies allow extortionists to extract nearly untraceable payments from their victims. This has emboldened them to ask for more money. And the downtime from a ransomware attack is now over three weeks.
Thus, companies have no choice but to pay the ransom or risk shutting down for nearly a month.
3. Work-from-Home Exposure
In recent years, companies rushed to set up networks that would allow employees to work remotely. Unfortunately, in their haste, many of these companies neglected network security. They also failed to train the employees working remotely on how to protect the company's data.
As a result, data has been exposed by both employee mishandling and hackers who use unsecured remote terminals to access sensitive data.
4. Ineffective Cybersecurity Hygiene
A shortage of IT workers has left many businesses with outdated security systems. When these companies fail to keep their cybersecurity tools up to date, hackers can exploit known vulnerabilities.
Equally importantly, network administrators and other IT managers help train employees in good cybersecurity practices. Finally, a company's network security team can monitor its computer systems for signs of hacking.
Many high-profile breaches did not happen in a single event. Instead, hackers accessed the systems undetected for months or even years.
5. Increasing Loss Ratios for Cyber Insurers
Loss ratios refer to the amount a cyber insurer collects in insurance premiums compared to the amount it pays in claims. A recent study found that insurance companies were paying over 70% of the insurance premiums collected as claims.
In other words, for every $1 collected in cyber policy insurance premiums, insurance companies had to pay over $0.70 in claims. Once you add in their overhead, insurers were losing money on these policies.
6. Growing Demand for Cyber Insurance
Normally, greater demand tends to drive prices down. But in the case of cyber insurance, the new policyholders often face greater risks of breaches.
Large companies with strong cybersecurity already have cyber insurance. The newer policyholders are start-up companies and small businesses that have only recently begun addressing their data security issues. As a result, a small business or start-up will face rising rates of cyber coverage.
5 Steps Businesses in Denver Can Take to Mitigate the Cost of Cyber Liability Insurance
Insurance companies do not always offer the most flexible pricing. But insurers will sometimes negotiate premiums for well-capitalized small businesses and start-ups so that they can establish a long-term relationship with them. Ways to reduce your cyber insurance cost include:
1. Invest in Strong Cybersecurity Measures
Cybersecurity is a moving target. Software companies release packages, and programmers and hackers identify vulnerabilities. So software companies release patches to fix the vulnerabilities. As long as software remains in use, hackers will look for ways to exploit it.
You can reduce your risk of attack by investing in strong cybersecurity measures, such as encryption and multi-factor authentication. These tools harden your systems against attacks. Even if your system isn’t hack-proof, hackers may bypass it to focus on easier targets.
2. Conduct Regular Risk Assessments and Address Vulnerabilities
Your network security staff members will need to stay on top of emerging risks and newly identified vulnerabilities. Regular reviews of these risks and vulnerabilities will help them patch holes in your system and train workers to handle potential threats.
For example, when a new virus emerges, your network administrators can update your virus scanners to identify the new virus. They can also remind workers not to open unknown email attachments on their work computers.
3. Purchase Appropriate Levels of Coverage Based on the Cyber Risk Profile
You should match your cyber insurance with your risk of cyber attack. Too much coverage is a waste of money. Too little coverage could leave you exposed after a breach.
Once you know exactly what you have at risk, you can talk to insurers about cyber insurance pricing for policies to match your level of exposure. For example, suppose that you do not store third-party data. You might not need coverage for cyber liability claims.
4. Implement Effective Data Protection Policies
Your cybersecurity policies are often as important as your technologies. Employees can often be a weak link in your computer system if they share credentials, use weak passwords, leave company devices unattended, or take other cyber risks.
You should develop effective policies for collecting, storing, accessing, and using data on your system. You also need to enforce your policies by monitoring your system and employees.
5. Regularly Review and Update Insurance Coverage
Businesses change and evolve. You might need significantly different coverage after changing software, offering new products or services, or opening a new location. You should regularly review your insurance needs and requirements so you do not overpay for coverage.
At the same time, you need to make sure you are not underinsured. By balancing your needs with your insurance coverage, you can control the cost of cyber security insurance for your company.
How Can Corporate & Commercial Attorneys at Sequoia Legal Help You?
Cyber insurance is a new field. A corporate attorney in Denver, Colorado, can help you review policy terms and find a policy that meets your cyber security risks and potential liabilities. A Denver commercial attorney can also help you develop policies to manage your rates and assist you if you need to file a cyber insurance claim after a breach.