Why your business needs cyber insurance

Plenty of small- and medium-sized business (SMB) owners mistakenly assume that they don't have to deal with cybercrime. After all, why would someone have a go at the little guy when they can gain more by targeting the big shots like Timehop, Macy’s, and Bloomingdale’s?

Unfortunately, cybercriminals are relentless. After years of targeting large enterprises, they've realized that those organizations are increasingly beefing up their cybersecurity measures with state-of-the-art security. That's why many criminals are now going after SMBs — it's quicker and easier for them to extort small amounts of money from multiple SMBs than to hack into a larger organization and risk either getting zilch or getting caught. In fact, 43% of online attacks are directed at SMBs, but only 14% of those businesses are prepared to defend themselves.

Let’s take a look into why cybercrimes are becoming more common for SMBs, and why you’re better off having cyber insurance.

Why are SMBs being targeted?

SMBs, by nature, operate on fewer resources. Unlike corporate competitors who have deep pockets, SMBs can dedicate only limited funds to cybersecurity initiatives. Let’s face it — you’d rather invest in activities that will grow your business than let yourself be bogged down by pesky phishing emails. Unfortunately, cybercriminals are aware of and taking advantage of this disregard.

Another reason why SMBs are easy targets is they have difficulty getting hold of top cybersecurity specialists. Because you’re being priced out of the market, you have no choice but to turn to less expensive but less experienced personnel to protect your data. What’s great, though, is there’s a rapidly growing industry of managed services providers (MSPs) that offer various IT applications and services, including cybersecurity solutions.

What is cyber insurance?

Cyber insurance is exactly what it says on the tin — it’s designed to help an organization cushion the blow of a cyberattack or similar event by offsetting recovery costs. It’s sometimes referred to as cyber risk insurance or cyber liability insurance coverage (CLIC).

Most businesses invest in physical security and general liability insurance, which are great in protecting physical assets and facilities, yet limit cybersecurity investments to a firewall or free antivirus software. Likewise, many SMBs don’t regularly upgrade software nor encrypt data, which makes them extra vulnerable to cyberthreats.

Without cyber insurance, you’ll have to cover significant costs incurred from data breaches. These include business and data asset losses, costs of investigations, and any court and settlement fees resulting from legal action.

What does cyber insurance cover?

When cyber insurance policies were first developed in 2000, they covered business interruption and potential liabilities from a company carelessly transmitting a virus to another company. Today, insurance companies offer broader coverage that encompasses the payment of fines and penalties as well as other costs like credit monitoring, public relations, and restoring private data.

There are two main types of cyber insurance policies based on coverage. One is first-party response, which includes the cost of notifying affected parties about a data breach and consequently rebuilding your reputation. The other is third-party defense, and it covers any legal expenses stemming from cybersecurity breaches, like lawsuits from regulators or affected customers.

Policies can be further classified through their individual features and coverage for specific cyberattack losses such as theft and fraud, forensic investigation, business interruption, extortion, reputation loss, and data loss and restoration.

How do you choose the right cyber insurance policy?

Before choosing a cyber insurance policy, you should consider your business’s current needs and resources. You don’t have to spend thousands of dollars on cyber insurance if most of your business is conducted personally. Take into account your exposure to cyberthreats as well as the type and quantity of your data when determining which policy is best for your business.

Having cyber insurance is just one way to protect your business from cybercrime. To significantly reduce the risk of falling victim to cyberattacks, you should have a strong cybersecurity strategy set in place. Our experts can help you do that. You can also download our free eBook for more information about cybersecurity.