Data has become so valuable and so critical to businesses that often, it is a company’s most protected asset. If a data breach were to happen today, it likely will have far-reaching consequences. These range from steep legal fees and regulatory fines, to intellectual property loss and reputation damage. The costs can be devastating, and for smaller firms, may even shutter the doors on operations.
Corporate insurance has always covered a wide range of business risks, so it was only a matter of time before insurers also added cyber risk protection to their portfolio. Indeed, such products have been available for the better part of a decade.
It was only within the past year, however, that cybersecurity insurance began to pick up serious momentum. This rise in demand is mostly fueled by two things: news stories of catastrophic breaches, and government agencies pushing for more active involvement with corporate data incidents.
This type of protection is relatively new, which is why it’s important for companies to clearly understand the capabilities and limitations of cybersecurity insurance. Although it can certainly help mitigate risk, is is by no means a replacement for proper security efforts.
In their current state, most cyber risk insurance policies leave significant gaps in the types of damage they cover. Direct expenses related to liability are typically part of the plan. Most products, however, do not account for losses resulting from reputation damage or lost competitiveness as a result of intellectual property theft. And although these costs can certainly be difficult to quantify, they can be among the most severe.
In addition to limitations on the scope of coverage, insurance policies can be disconcertingly unclear in their terms, making it difficult to know what specific risks will be covered and whether other insurance types already cover certain areas of risk. Often, both the insurer and the executives responsible for risk management lack the technical expertise necessary for proper evaluation, making it important to involve technicians in the process.
Ultimately, a properly vetted and well-aligned cybersecurity insurance policy does have a place in an organization’s strategy for managing cyber risk. It should not, however, be considered a replacement for defenses on mission-critical data. Before considering such a policy, it’s wise for a firm to have their cyber resources fully assessed and a plan implemented to protect their key assets. Cyber risk insurance can then be properly applied to cover the rest.
Lunarline helps companies across sectors understand their critical risks and protect against them. Before you get in touch with your insurers, send us a message online to learn how we can help you.