How much cyber insurance do I need?

Cyber insurance helps your business financially survive data breaches and cyberattacks. It's also called cyber liability insurance or cybersecurity insurance.

Any small business owner with a computer and an Internet connection faces a certain level of cyber risk, as cybercriminals can target them with phishing, malware, and ransomware attacks.

A cyber insurance policy not only covers the cost of recovering from a data breach, but also provides assistance with the lawsuits that often result. Your legal expenses could include attorney’s fees, court-ordered judgments, and settlements.

Additional costs may include:

• Business interruption insurance (or business income coverage) as you recover from the attack
• Paying for a digital forensic investigation
• Repairing any security weaknesses
• Notifying any affected customers
• Paying a ransom to unlock your data
• Credit card and fraud monitoring services for affected customers
• Regulatory fines from the Payment Card Industry (PCI)
• Public relations to protect and restore your reputation

The amount of cyber liability coverage you need depends on your business, your industry, and the type of personal information or customer data you handle.

If your company stores personally identifiable information (PII) on its computers, you could face expensive lawsuits and government fines over stolen data. PII includes full names, Social Security numbers, driver’s license numbers, bank account information, credit card numbers, and email addresses.

Most small businesses purchase a cyber liability insurance policy with a $1 million per-occurrence limit, a $1 million aggregate limit, and a $1,000 deductible. These are the limits you'll likely be offered when you first start looking into coverage.

Data breaches cost an average of $180 per lost or stolen record of customer PII, which means this coverage limit is high enough to protect a small business that handles a few thousand records. However, customer records aren't the only thing to take into account.

Costs can vary depending on other factors, such as:

• Data sensitivity
• Industry regulations
• Potential losses
• Cybersecurity practices
• Company size

The risk is especially high for healthcare facilities and other businesses that handle medical records and other protected health information. This falls under the Health Insurance Portability and Accountability Act (HIPAA), which sets national standards for protecting personal information and reporting compromised data. HIPAA violations can result in hefty fines.

Some carriers offer a risk assessment for your business when you buy cyber insurance. This isn't only to determine your premium, but also to help you avoid costly cyber incidents—which is the best scenario for both you and your insurer.

They'll often recommend steps you can take to mitigate your risks and lower your premium. You might also gain access to cybersecurity tools, such as systems monitoring and automated alerts.

If your company handles data that may put it at higher risk, purchasing a cybersecurity policy with higher coverage limits may be a smart option. Many policies have a maximum coverage limit of $5 million, but you can discuss your need for more coverage with your insurance agent or provider.

As with any business, the amount of cyber insurance that independent contractors need depends on the amount of data they need to protect. It also depends on the risks associated with their work, such as maintaining a database of customer information, or recommending software to clients.

While it’s not likely that an independent contractor would need first-party cyber coverage, they might need third-party cyber insurance to protect themselves from lawsuits. This is especially true if a client deals with PII, such as medical records.

In fact, some clients that handle sensitive data require their contractors to have third-party liability coverage to assure them that the contractor can pay for a cyber liability lawsuit if their work results in a data breach. Client contracts most often require a $1 million per-occurrence limit.

In today’s litigious society, a contractor could face expensive legal defense costs after a data breach, even if they were not at fault.

If your clients handle sensitive data, you may want assurance that they can handle a lawsuit or other data breach costs. It may be wise to encourage your clients to purchase cyber liability insurance, or even require it before you take on a risky project.

If you require that a client purchase cyber insurance in a work contract, you can specify the amount of coverage. This way, if a data breach occurs, you can potentially avoid legal costs by ensuring that your clients have the means to cover the cost of a data breach themselves.

Complete Insureon’s easy online application today to compare quotes from top-rated insurance carriers for cyber policies. A licensed insurance agent will help you explore your options and find the best insurance solutions for your business needs. Once you find the right policy for your small business, you can begin coverage in less than 24 hours.