With progress come costs: the more advanced we become, the more likely we are to have our systems compromised. Security measures alone can’t guarantee against cyber threats, which is why cyber insurance is becoming more important than ever.
So why is cyber insurance important to manage the risks of cyber threats and comply with regulations? This is done to protect the company from losses on incidents of cyber attacks, this type of insurance helps companies protect their data, and recover from these cybersecurity incidents. It also promotes regulatory compliance through incentives that come with its coverage.
How Does Cyber Insurance Work?
Cyber insurance, also called cybersecurity insurance, is an insurance plan that helps minimize the risk of financial losses on cybersecurity incidents by transferring some of the risks to the insurer. Aside from that, cyber insurance policies also include other costs associated with recovering the risk and remediation such as legal assistance, investigators, crisis communicators, and customer credits or refunds.
This insurance originated from errors and omissions (E&O) insurance. Most providers sell E&O as a separate form of insurance, but in some cases, it’s also provided in cyber insurance coverage. However, cyber insurance provides more coverage than E&O as the latter does not include the loss of third-party data in its policy.
Why is Cyber Insurance Important?
Currently, cyber-attacks are considered as unavoidable as this risk seems to evolve along with progress. However, cyber insurance is actually important to (1) manage risks of financial loss, and (2) ensure compliance with significant regulations to mitigate cyber threats.
1) Cyber Insurance as a Risk Management Tool
The risk of financial losses on cyber attacks must not be taken for granted. Aside from the financial loss on the part of your business, these may include costs to notify and amend those who are affected. These costs may be extremely expensive and your business’ assets may even be insufficient to cover the claims for it.
Other than these costs, it may also result in the loss of customers and revenue. However, with cyber insurance, the timely remediation of cybersecurity incidents may be ensured. What are these cybersecurity incidents?
a) Cyber Threat Incidents and Losses
Cyber insurance is important to reduce the losses associated with the risk of cyber threats. However, it’s important to know what these cybersecurity issues are to be one step ahead of cybercriminals. Some of these are the following:
- Data Confidentiality
- System Malfunction / Issue
- Data Integrity / Availability
- Other Malicious Activities (e.g, misuse of the system, targeted malicious communication, cyber fraud)
|Data Confidentiality||Also referred to as data breaches, this incident occurs when confidential data is compromised. The data involved may be the company’s own confidential data or third-party confidential data.|
|System Malfunction / Issue||This incident may occur either due to human error or a malicious attack. There are multiple categories of this, particularly:
|Data Integrity / Availability||When a company’s own or third-party data is deleted, corrupted, and encrypted, this is detected and categorized as a threat regardless of the cause of such omission. Such cases usually happen due to human error or malicious cyber attacks.|
|Other Malicious Activities||
b) Contribution of Insurance to Cyber Risk Management
Cyber insurance is a crucial part of the implementation of risk management strategies that are both proactive and reactive. It acts as the company’s safety net by reducing the negative financial impact of cyber threats or requiring your company to regularly assess and address the given risks and gaps in security. Managing risks is also incentivized with lower premiums, which encourages companies to consistently improve their cybersecurity measures.
c) Common Cyber Insurance Coverage for Risk Management
Companies provide different coverage on insurance depending on your company’s cybersecurity needs. To secure risk management through cyber insurance, it’s important to ensure that these inclusions are present in the coverage of your policy:
- Data confidentiality – for incidents of identity theft.
- Cyber attacks on your data by vendors or third parties
- Breach of your company’s network
- Cyber attacks that occur anywhere in the world
- Terrorist acts
2) Cyber Insurance as an Incentive for Regulatory Compliance
Aside from the purpose of risk management, cyber insurance is also used to promote regulatory compliance. Some lawmakers actually require businesses that have contracts that have access to sensitive government data to have cyber insurance. Coverage of insurance policies may even include benefits linked to ensuring that companies comply with cybersecurity regulations.
a) Inclusions of Insurance Policies
Risk management is also applicable to the insurers themselves as they also want to reduce their own risk of losses when dealing with their clients, which is why they impose their own set of requirements from companies in the clauses that they add to the policies. These requirements may include compliance with certain regulations, laws, policies, and standards that provide assurance of the company’s credibility on its claims.
Other than that, expenses to adhere to regulatory requirements and practices are also included by some insurers in their cyber insurance policies. The regular assessments and recommendations by insurance companies also serve as a backup to strengthen your claims for damages in the event of a lawsuit or regulatory investigation.
b) How Does Cyber Insurance Incentivize Regulatory Compliance?
Regulations on cybersecurity aren’t limited to legal purposes, it also prevents the risk of cybersecurity incidents and losses. This is because regulations serve as preventive measures to cyber threats.
The most common incentive to ensure that companies adhere to all the significant cybersecurity regulations is lower premiums. Aside from that, expenses for regulatory requirements may be included in the policy.
c) Common Cyber Insurance Coverage for Regulatory Compliance
Cybersecurity regulations and standards vary in different states or countries, which means that there may be different regulations incentivized by cyber insurance companies. However, it may be good to note some common insurance policies directed at ensuring regulatory compliance:
- Duty to defend – insurance companies must be able to defend you in the event of a lawsuit or regulatory investigation.
- Provide excess coverage – your insurer must be able to provide assurance in providing in excess of any other applicable insurance coverage your company may have.
- Offer a 24/7 breach hotline
Protect Your Business from Cyber Threats with a Security Plan from Abacus
To know how to best protect your data and systems, Abacus can provide a multi-layered, comprehensive security plan that is tailored to your company. You can count on us for the optimal efficiency of your company’s systems through cybersecurity.
You can also check out the wide range of services we provide for every IT needs that your company may have. Reach out to our team of experts by contacting us on our website at https://goabacus.com/.