Insurance

Cybersecurity risks have become more significant as critical consumer financial and health information is increasingly stored in electronic form. As people become more reliant on electronic communication, and as businesses collect and maintain ever more granular pieces of information on their customers, the opportunity for bad actors to cause difficulties for businesses and the public is exploding. Recent high-profile data breaches have led regulators to work toward strengthening insurer defenses against attacks.

Cyber Risk Management

In recent years, the demand for cyber insurance has increased significantly in response to sharply heightened risk awareness. However, managing cyber risks through insurance is relatively new. Although the market for cyber liability insurance is off to a good start, it is expected to grow dramatically over time as businesses gradually become more aware that current policies do not adequately cover cyber risks. With each announcement of a system failure leading to a significant business loss, the awareness grows. This growing awareness has stimulated demand for cyber liability insurance products.

As data breaches occur more frequently, there are additional pressures for business to step up efforts to protect the personal information in their possession. Cyber-attacks may come from nation states, terrorists, criminals, activists, external opportunists and company insiders (both intentional and unintentional). Cybercriminals attack to gain some type of political, military or economic advantage. They usually steal money or information that can eventually be monetized, such as credit card numbers, health records, personal identification information and tax returns.

Cyber risks include:

• Identity theft as a result of security breaches where sensitive information is stolen by a hacker or inadvertently disclosed, including such data elements as Social Security numbers, credit card numbers, employee identification numbers, drivers’ license numbers, birth dates and PIN numbers.
• Business interruption from a hacker shutting down a network.
• Damage to the firm’s reputation.
• Costs associated with damage to data records caused by a hacker.
• Theft of valuable digital assets, including customer lists, business trade secrets and other similar electronic business assets.
• Introduction of malware, worms and other malicious computer code.
• Human error leading to inadvertent disclosure of sensitive information, such as an email from an employee to unintended recipients containing sensitive business information or personal identifying information.
• The cost of credit monitoring services for people impacted by a security breach.
• Lawsuits alleging trademark or copyright infringement.

Cyber Liability Policies

Most businesses are familiar with their commercial insurance policies providing general liability coverage to protect the business from injury or property damage. However, most standard commercial lines policies do not cover many of the cyber risks mentioned above. To cover these unique cyber risks through insurance requires the purchase of a special cyber liability policy. However, cyber risk remains difficult for insurance underwriters to quantify due in large part to a lack of actuarial data. Insurers compensate by relying on qualitative assessments of an applicant’s risk management procedures and risk culture. As a result, policies for cyber risk are more customized than other risk insurers taken on, and, therefore, more costly. The type of business operation will dictate the type and cost of cyber liability coverage. The size and scope of the business will play a role in coverage needs and pricing, as will the number of customers, the presence on the Web, the type of data collected and stored, and other factors.

Cyber liability policies might include one or more of the following types of coverage:

• Liability for security or privacy breaches. This would include loss of confidential information by allowing, or failing to prevent, unauthorized access to computer systems.
• The costs associated with a privacy breach, such as consumer notification, customer support and costs of providing credit monitoring services to affected consumers.
• The costs associated with restoring, updating or replacing business assets stored electronically.
• Business interruption and extra expense related to a security or privacy breach.
• Liability associated with libel, slander, copyright infringement, product disparagement or reputational damage to others when the allegations involve a business website, social media or print media.
• Expenses related to cyber extortion or cyber terrorism.
• Coverage for expenses related to regulatory compliance for billing errors, physician self-referral proceedings and Emergency Medical Treatment and Active Labor Act proceedings.

Securing a cyber-liability policy will not be a simple task. Insurers writing this coverage will be interested in the risk-management techniques applied by the business to protect its network and its assets. The insurer will probably want to see the business’ disaster response plan and evaluate it with respect to the business’ risk management of its networks, its website, its physical assets and its intellectual property. The insurer will most likely be keenly interested in how employees and others are able to access data systems. At a minimum, the insurer will probably want to know about antivirus and anti-malware software, the frequency of updates and the performance of firewalls.

Cybersecurity Insurance Business Coverage

Despite high profile data breaches of large companies, small companies are also targets for hackers as they possess sensitive information but typically have less security than larger companies. Cybersecurity insurance provides coverage for compromised security or privacy breaches at work. Business cybersecurity policies tend to be highly customized and therefore, costly.

There are steps you can take to help secure your business:

• Start by conducting a security and self-risk assessment. Determine what to protect, what protection exists and where the gaps exist.  This also means developing a plan to protect your property and data, operational information and client data. Finally, identify the tools you need to protect this information.
• Implement sound cybersecurity procedures and training for employees. Educate employees on smart use of social media, how to spot suspicious emails and not connecting to public Wi-Fi on a company device.
• If your small business has a disaster recovery plan, consider cybersecurity insurance as part of it. If you don’t have such a plan, consider creating one. Developing procedures and identifying threats is important but you also must understand your vulnerabilities. You might consider testing such as an internal phishing campaign against employees to check your company’s vulnerably.
• Always back up important business systems and data. Implement settings encouraging regular password changes, restrictions on the websites employees can access as well as strong security software.

More Information

Visit the National Association of Insurance Commissioners’ Special Section on Cybersecurity for more information. The FDIC hosts a wealth of information on cybersecurity. The Federal Trade Commission has an identity theft website to report incidents and develop a recovery plan.