Cyber Liability Insurance: What Should You Expect to Pay?

When we talk to clients, we hear the same question repeatedly: “Am I paying too much for cyber insurance coverage?”

The answer is simple: it depends.

Cyber liability insurance is a complex type of coverage designed to protect against catastrophic losses from cyber-related incidents, like security breaches or malware attacks. A good policy provides financial and legal protection while helping maintain compliance with state and federal regulations. But what does that mean for your bottom line?

Read on to discover how insurance companies calculate your premiums, what small businesses should expect to pay and how to reduce costs without compromising the security of your most sensitive data.

Key Factors that Increase the Cost of Cyber Insurance Coverage

While specific factors may vary depending on the insurer and the policy, here are the most common variables that can increase the cost of your cyber insurance premiums:

• Company size and industry. Larger businesses typically handle more data and have a higher cyber risk exposure, which may lead to higher cyber insurance premiums. In addition, certain industries such as healthcare, finance, and retail may also face increased cyber risks and, therefore should expect to pay more.
• Type of data stored. If your business handles large volumes of sensitive customer data or other personal information, that could have a significant impact on your cyber insurance costs.
• Level of security measures in place. Prospective insurers will take a close look at your security measures and cyber risk management practices. If you’ve already implemented employee training programs, incident response plans, and periodic security assessments, you may be viewed as lower risk and could receive more favorable rates.
• Prior claims history. If your business has a history of cyber insurance claims, you may be subject to higher premiums. Frequent claims or large payouts could be an indicator of higher cyber risk and may result in increased costs.

Keep in mind that every cyber insurance policy will define the scope of coverage and identify situations or events that insurance companies will not cover. While these exclusions may differ from one provider to the next, most policies exclude coverage for breaches that occurred before the policy’s effective date, fraudulent acts committed by your employees, or losses resulting from system changes made without the approval of your IT department. Make sure to review these exclusions in detail so you have a clear understanding of what your policy does and does not cover.

5 Types of Cyber Liability Insurance Coverage

While the specifics may vary depending on policies and providers, cyber insurance coverage tends to fall into five basic categories:

1. First-party coverage. These policies are designed to protect your business against losses incurred as a direct result of a cyber incident.
2. Third-party coverage. Unlike first-party policies, third-party cyber liability coverage protects your business from claims and legal liabilities brought by third parties in the wake of a cyber incident. It focuses on your liability to customers or partners for any damages wrought by a data breach or other cyber-related event.
3. Business interruption coverage. This type of cyber insurance is designed to cover expenses associated with any disruption to the normal operation of your business, including revenue loss.
4. Network security liability coverage. This type of cyber insurance addresses liabilities arising from hacking, unauthorized access or other breaches of your systems. It can help cover costs related to investigation and remediation, along with any legal expenses you may incur.
5. Privacy liability coverage. This type of coverage is intended to cover liabilities associated with the mishandling of personal information, such as a failure to adequately protect customer data or the accidental release of confidential information such as social security numbers.

What does Cyber Security Insurance Cost on Average?

Due to the complex factors that determine cyber insurance costs, it’s challenging to provide an average cost that applies universally. In general, however, small businesses should expect to pay a minimum of several hundred dollars per year for basic coverage, while comprehensive policies for mid-size organizations may cost upwards of $10,000 annually (and perhaps far more in higher-risk industries). The exact cost will depend on your annual revenue, the kind of personal information you typically handle, and the complexity of your IT infrastructure.

If you’re in a higher-risk industry, here are some general guidelines to keep in mind:

• Healthcare. Cyber insurance costs for healthcare organizations can be much higher than other sectors, as the healthcare industry faces significant cyber risk due to the sensitivity of patients’ personal information.
• Financial services. It should come as no surprise that cyber insurance premiums in the financial services industry can be particularly high — ranging from tens of thousands to hundreds of thousands of dollars annually.
• Retail. Retail and e-commerce businesses that handle customer data are also attractive targets for cybercriminals. Cyber insurance costs for these businesses can vary depending on your annual revenue, transaction volume, and which security measures you already have in place.

How to Reduce the Cost of Cyber Insurance Coverage

You can adopt a number of proactive strategies to reduce the cost of your cyber insurance premiums. Here are just a few:

• Implementing effective cybersecurity measures. This may include adopting robust encryption protocols, keeping your software up to date, deploying multi-factor authentication (MFA), and stepping up your tactics for intrusion detection and prevention.
• Conducting regular risk assessments. Invest in a thorough review of your organization’s cybersecurity practices and identify any vulnerabilities that need to be addressed.
• Training employees in cybersecurity best practices. Create comprehensive training programs to educate your staff on cyber risks such as phishing attacks and social engineering scams.
• Negotiating with insurance providers. Don’t be afraid to shop around. Different insurance companies may have varying criteria for assessing risk, so exploring options can help you find the most cost-effective plan to meet your business’s unique needs.

Why Cyber Insurance Coverage is an Investment in the Future of your Business

While it may seem extravagant to spend tens of thousands of dollars per year on cyber insurance premiums, keep in mind that these costs could be relatively minor compared to the potential impact of a cyber incident. According to IBM Security, the average data breach can cost as much as $4.35 million. When considered in that context, cyber liability insurance may be an exceptionally smart investment — especially for businesses in healthcare, retail, or financial services.

Keep in mind, too, that cybersecurity is more than a software or tool. It’s a dynamic strategy comprised of multiple systems and safeguards to prevent attacks and mitigate damage on all fronts. That’s why it’s important to work with a trusted cyber insurance provider who can help you assess your unique requirements and find the best coverage at a reasonable cost. Some insurers even offer data breach coaches to help you prepare for a cyberattack. That’s a major value-add, and we highly recommend choosing an insurer that can provide that level of service so you can face the future with confidence.

Understanding the various factors that influence cyber liability costs can be confusing. At IT Solutions, we understand you may have questions about whether you’re getting the best value. If you’re uncertain about your current costs or seeking ways to optimize your coverage and reduce premiums through cybersecurity measures like employee training and 24/7/265 monitoring, feel free to message us or call 866.742.5478. If you’re an ITS client and want to learn more, please reach out to your Strategic Advisor. Our team is dedicated to helping guide you through plans offered by 3rd parties to determine the best solution for your company.