Why Your Business Needs Cyber Liability Insurance
As our personal and professional lives move more and more online, the accompanying liability becomes a huge concern. Cyber liability was barely on the radar 10 years ago, but now protection is an absolute must for businesses and professionals.
What is Cyber Liability?
Cyber liability is the risk posed by conducting business over the internet, over other networks, or using electronic storage technology. If your business handles ANY type of online transactions where you use or store customer credit card or banking information, cyber liability is a threat. A data breach of sensitive customer information within your system can cause a major threat to a business’ financials.
What’s the Financial Impact?
Figuring the financial impact associated with a data breach is contingent upon the scope and size of the information stolen. A thorough discussion with your insurance professional on how a breach could impact your company’s financials is necessary to determine an appropriate limit of how much risk you and your company are willing to retain before it significantly impacts your company’s bottom line.
A data breach means your company becomes responsible for the legal fees for all parties, judgements or settlements, as well as costs associated with customer notification and credit monitoring. There will also be costs associated with public relations and reputation management which, while hard to figure, are often the ones with the largest financial impact.
How Can I Protect My Business?
A cyber liability policy helps protect a company’s financials from the expenses that come from any type of data breach. There are two main types of cyber liability insurance to consider when selecting coverage, first-party coverage and third-party defense coverage.
First-party coverage is for the financial component of addressing the immediate customer and business needs. For example, when a breach happens and you have to shut down your network, there will be a financial impact due to your inability to conduct business as usual.
Third-party coverage on the other hand is your defense or protection from the lawsuits you could face from a data breach due to your companies practices or negligence. Some businesses only need one of the coverages and some will require both. It’s important to have a conversation with your insurance consultant to determine the needs for your business.
Shortcomings of Cyber Liability Insurance
One of the most common misconceptions of cyber lability is that it covers those transactions on the internet made with fraudulent credit or banking information. We have all heard stories or know of someone who had property or funds stolen via the internet. Unfortunately, there is very little a current insurance policy can do to respond to those acts, as standard insurance policy language does not apply in many of those cases.
The Future of Cyber Liability
However, like everything else that is evolving in our changing world, I look for that to change soon. Fraud coverage is on the horizon for our small business customers, and I believe that your first-party cyber liability will become part of a standard liability policy in the near future, with an option to add third-party as an endorsement. It can take time for insurance products and policies to catch up with our ever evolving society, which is why it is important to meet with your insurance professional at least annually to review your current coverage and have a discussion about your business’ goals.
If you’d like to talk with an insurance agent about your options for cyber liability insurance coverage, reach out to one of our insurance agents or fill out our contact us form online.
LSB Insurance, a Lincoln Savings Bank company. Not FDIC insured, no bank guarantee, may lose value, not a deposit, not insured by any Federal Government Agency.