For insurance agencies that want to grow their business, cyber insurance offers an exciting opportunity. Even for agencies that just want to serve their current customers well, it’s becoming increasingly important. Cyber liability insurance is currently the fastest growing type of insurance.
Independent agents can scarcely afford to ignore cyber insurance. All agents who want to successfully meet their customers’ insurance needs in today’s online world need to be familiar with the coverages available through cyber liability insurance and the perils that businesses face.
Cyber Insurance Can Include Four Coverages
As with all types of insurances, the specific coverage provided under cyber liability policies tends to differ. In general, businesses can get four different kinds of coverage through cyber liability insurance:
- Errors and omissions (E&O) coverage
- Media liability coverage
- Network security coverage
- Privacy coverage
The E&O and media liability coverages included in cyber liability policies are typically similar to E&O and media liability coverages that can be purchased through other types of policies (including stand-alone E&O and media liability policies). Occasionally, the coverages are tweaked slightly when obtained through a cyber liability policy.
For instance, a policy’s media liability coverage might primarily protect against claims related to online activities but offer offline coverages as an available add-on (or only offer online coverage). In general, though, E&O coverage still protects against claims related to covered errors and omissions that a company makes, and media liability coverage usually still guards against claims related to advertising, copyright or trademark infringement, slander or libel, and other similar issues.
Network security coverage is a somewhat newer type of coverage that’s designed to protect companies from the risks posed by conducting operations online. A cyber liability policy with robust network security coverage will insure a business against multiple different types of data breaches, including a breach of customer data, employee information, vendor details, and even patents and trade secrets held for clients in digital format. It’ll also help to cover other potential incidents that aren’t necessarily related to data breaches, such as virus transmissions, cyber extortions, and data losses.
Privacy coverage started becoming commonplace in just the past decade, making it the youngest of these four coverages. While similar to network security coverage in some ways, privacy coverage is distinct, as it is meant to guard against data breaches – not just those caused by a network security breach. Privacy coverage might cover a business if data is compromised due to:
- A breach of physical records (e.g. an employee discards a file without shredding it)
- Files are lost (e.g. an employee loses a laptop)
- Human error (e.g. an employee sends an attachment to the incorrect email address)
- The improper collection of information (e.g. an employee asks a question they aren’t allowed to)
In order to explain to customers how cyber liability insurance could protect their business, not to mention help businesses evaluate and compare policies, agents need to be familiar with all four of these available coverages and the protections they each afford.
Different Businesses Have Different Insurance Needs
Agents must also be familiar with the risks businesses face. The financial cost of a security breach is often very substantial.
Businesses that suffer a data breach face both first-party and potential third-party costs. The first-party, or direct, costs associated with a data breach frequently include expenses such as paying for a forensic investigation of the breach, hiring an attorney to help determine whether regulators must be notified of the breach, offering credit monitoring to affected parties, costs associated with notifying both people and regulators of the breach, associated PR expenses, and lost revenue due to system downtime.
Third-party costs often include expenses associated with either lawsuits or regulatory inquiries related to a breach. Some examples of third-party costs are hiring legal representation, paying settlements and judgments, compensating banks that must re-issue cards, and expenses associated with answering regulators’ inquiries.
Unlike many other types of insurance, cyber insurance often provides coverage for both first- and third-party costs.
Due to the fact that many files can be compromised in a single incident, recovering from just one data breach is often expensive. According to a survey conducted by IBM, the average breach cost $158 per document ($355 for breaches in the healthcare industry), and totaled $4 million. With almost half of all breaches arising from malicious attacks, and the number of business operations conducted done online continuing to increase, the cost of a data breach is only expected to increase.
Businesses can reduce these costs some by having an incident response team, but that only saved about $16 per document compromised, according to IBM. Even with an incident response team in place, a breach could still cost a company millions of dollars.
Helping Customers Understand Coverages and Risks is Good for Everyone
It’s an insurance agent’s role to know how the policies they offer help their customers. Once agents are familiar with both the coverages offered by cyber liability insurance and the risks that businesses face, they’ll be able to better explain the risks and coverages to their customers. Educating customers is beneficial for both everyone, as customers will learn about the potential liabilities they face and how they can protect themselves. The more they learn about the possible risks, the more they’ll be willing to pay for cyber liability coverage because it’s an important type of insurance in today’s world.
