Who Needs Cyber Liability Coverage?

Would your standard business liability insurance protect you if your electronic data were stolen, your website were shut down by a power failure or by being hacked, or if someone filed slander or libel allegations against your business based on a social media post? Almost every business has at least some cyber risk exposure that needs to be addressed; you do not need to sell a product or provide services over the Internet to be susceptible to cyber crime or a data breach that can be financially devastating. Any business that possesses valuable or sensitive data faces cyber risks and needs to take steps to mitigate them.

First, the basics. How do you define cyber liability? It refers to a range of potential liability exposures that can occur while using, storing or transferring data electronically for business purposes. The most common types of cyber threats that businesses face include:

  • Failure to protect personal or corporate information that is stored on computer systems, networks, smartphones, laptops and even paper files.
  • Statutory requirements to notify individuals or other businesses that their sensitive information has been breached.
  • Public relations and investigation costs resulting from a data breach.
  • Loss of income when a hacker or a power outage prevents customers from reaching your website.
  • Personal injury claims stemming from your website, blog or social media accounts
  • Business interruption and loss of income for a client or partner because of a hacker, security breach or power outage that affects your computer system, network or website.

Any business that handles electronic data—especially personally identifiable information about its customers—is particularly susceptible to cyber threats. Data can be breached and in many ways, from stolen laptops and other portable devices, to rogue employees, theft of digital assets, human error and more.

Do You Need Cyber Liability Coverage?

If you are sued because of a data breach or other cyber crime, your business is responsible for paying legal fees, court-ordered judgments or settlements, and any other court-related costs. You will also need to notify your customers of the breach, provide them with credit monitoring services, and undertake extensive public relations efforts to repair your public image. Imagine the financial blow this would be to a small firm.

Cyber liability coverage protects your business assets by paying for your legal defense, settlements and judgments, and even PR and other related expenses. It can be added to a business owners policy (BOP) or commercial general liability policy, or it can be a more tailored stand-alone solution. It comes in the form of first- and third-party coverage. First-party coverage pays for immediate customer and business needs following a cyber incident, and third-party coverage provides protection if you are sued by a customer or other partner for a data breach that was caused by your actions or negligence. You can choose one or both types of coverage.

Remember that smaller businesses might be even more vulnerable to data breach and cyber threats than larger ones. Consider these factors that might make cyber protection even more vital:

  • Do you handle sensitive customer credit or bank account information?
  • Do you handle medical information, Social Security numbers, driver’s license numbers or any other personally identifiable sensitive information about your customers?
  • Could you be at risk for employee mistakes, unauthorized computer or network access, hackers, or stolen equipment?

How do you know if cyber liability coverage is right for your business? You must weigh the risks you face along with the costs associated with them and decide if insurance coverage is the best way to help protect your assets. The cyber insurance market is still evolving, so finding the right policy can be challenging. You will need to do your homework, but getting covered can mean the difference between surviving the breach and financial devastation.

Here are some suggestions:

  • Carefully assess your business and how you handle data. Determine how valuable and how vulnerable your data is, and what costs you might face if something happens to it. If absorbing the costs would wipe you out, cyber liability coverage is probably an important solution.
  • If you decide that pursuing cyber liability coverage is the best plan, you will also need to prove that you are taking reasonable steps to protect your data. Even if you don’t pursue coverage, adding additional security systems and better training employees on how to handle sensitive data goes a long way toward mitigating your risks. It will also help to keep your premiums down.

Cyber insurance in its various forms can even give your clients or customers more confidence in your ability to handle the various types of cyber risks that are out there. Whatever you decide, be sure to work with a knowledgeable agent who has access to more than one experienced, reputable carrier and can help guide you toward the coverage you need.

Have you thought about the cyber threats your business faces? Could you be at risk for a cyber liability lawsuit?


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