What Is Cyber Liability Insurance?

Cyber liability insurance safeguards businesses against internet-based perils and risk factors regarding information technology. With the right cyber liability insurance policy under your belt, your company will be protected against data breaches and other tech-based risks.

Do I Need Cyber Liability Insurance?

Many small-business owners assume they can get by without cyber liability insurance. Typically, this is either because they don’t conduct much business online, or because they think their business is too small to be a target for internet crime. Unfortunately, this is exactly why small businesses are so susceptible to cyber threats — in fact, nearly two-thirds of all cyber attacks impact small to medium-sized businesses.

Cyber liability insurance is especially vital if you’re working in healthcare, retail or accounting, as these industries are some of the most frequently cyber-attacked. That said, investing in cyber liability coverage is a wise choice for any business dealing with customer payments, medical records, social security/driver’s license numbers, or any other personal contact information online.

Types of Cyber Risk Faced by Startups

In an increasingly digital world, many cyber insurance policies cover several risks to computer systems. While these policies can’t protect against cyber attacks, a cyber insurance policy can help affected customers bounce back from financial losses and business interruption caused by cyber events. The types of cyber risk faced by startups may include:

• Data breaches
• Ransomware attacks
• Cyber extortion
• Intellectual property theft
• Identity theft 

How Does Cyber Liability Insurance Work?

If a data breach or other cyber-threat affects your business, your cyber liability insurance policy will pay out the amount necessary to bring your company back to secure status. A decent cyber liability policy should be able to take care of:

• Legal fees and associated expenses
• Recovering any compromised data
• Restoring identities of all affected clients
• Fixing software vulnerabilities
• Repairing/replacing any damaged hardware

These are just a few of the things your cyber liability policy may cover. Many policies also provide coverage for web-media liability issues — in other words, disputes that arise over images, videos and other media on your company website — as well as fraud, business interruption, and more.

First-Party vs. Third-Party Coverage

First-party coverage protects the insured company (in this case, the startup) against direct losses that it suffers due to a cyber incident. This includes:

• Data Recovery Costs: These are expenses incurred to restore or recreate lost or damaged data.
• Business Interruption Costs: This is compensation for lost income if the startup can’t operate due to a cyber attack.
• Ransomware Payments: This is coverage for a ransom paid to regain access to systems or data.
• Crisis Management Fees: This includes any costs for public relations efforts to manage reputational damage.
• Notification Expenses: These are costs associated with informing customers about a data breach.
• Credit Monitoring Services: These expenses cover the cost of providing affected individuals with credit monitoring.

Third-party coverage, on the other hand, protects the startup against claims made by external parties (like customers or partners) who have been affected by the cyber incident. This includes:

• Legal Defense Costs: These are expenses incurred in defending against lawsuits.
• Settlements or Judgments: This is money paid to affected parties as a result of legal proceedings.
• Regulatory Fines and Penalties: These are costs associated with government investigations or fines.
• Media Liability Costs: This protection covers costs stemming from claims of defamation, copyright infringement, or other media-related issues.

The key difference is that first-party coverage deals with direct costs to the startup itself while third-party coverage handles the startup’s liability to others affected by the cyber incident.

What Should I Look For In Cyber Insurance Coverage?

Some insurance providers have only one pre-packaged policy for small-business owners looking to protect their digital assets, but others offer a variety of coverage options. Let’s take a look at the three primary types of coverage offered by cyber liability insurance providers:

• Compromised Data Protection: Includes credit monitoring for customers and public-relations services if a breach occurs.
• Identity Restoration Protection: Helps fraud victims restore their credit.
• Cyber Attack Protection: Defends businesses against viruses and targeted computer attacks, and assists with data restoration.

Your provider may bundle all of these services under one cyber insurance umbrella, or they might break them up into separate policies (like Nationwide does, for example).

Wrapping Up

When it comes to cyber liability insurance, it’s important to keep in mind that different businesses have different needs. For instance, a company that only keeps basic customer information may not require anything beyond malware/virus/hacking protection and data recovery.

However, that’s not to say that cyber liability coverage is any less important for these types of businesses. With the average cost of a small-business data breach being over $86,000, it’s advisable for any business with an online presence to consider investing in some type of cyber liability insurance policy.