Why Business Owners Should Care About Cyber Liability Insurance

By Christopher Nichols

Cyber attacks and network hacks create an avalanche of problems for businesses on multiple levels.

First, companies have to deal with the fallout of figuring out what data was lost or what areas of the network sustained damage. Second, companies have to figure out how to restore their credibility with their customers and in the public at large. However, the biggest issue facing a company is how to respond to multiple lawsuits that may arise from customers or employees who claim that their identity was stolen or that they incurred some type of financial loss from the breach.

Even the best business security systems cannot prevent a cyber attack if they are not well suited with additional protection such as a virtual private network or an encrypted internet protocol. Therefore, these companies may now have to turn to another type of protection to guard their assets: cyber liability insurance.

What Is Cyber Liability Insurance?

Here is the simplest explanation of cyber liability insurance:

Cyber liability insurance covers company liability for a data breach in which customer (or employee) private information is either illegally obtained or compromised.

Examples of sensitive customer information could include:

Social security number.
Driver license number.
Credit card information.
Personal account number.
Health records.
Address or phone number.

A classic example of a security breach that resulted in numerous lawsuits was the Accudoc Solutions breach of 2018. Part of a string of health care security breaches, the Accudoc Solutions breach compromised the privacy of 2.65 million Atrium Health patients. The breach was so bad that it took a week to close the gaps and re-establish a secure network. As a consequence, countless lawsuits occurred, leading to months of litigation and payouts.

So, the purpose of cyber liability insurance is to provide a payout to victims on behalf of a company. In many cases, an insurance company will negotiate a settlement on behalf of the company with multiple plaintiffs in a class-action suit to avoid going to court.

In addition, cyber liability insurance can also cover expenses associated with the following:

Legal fees and expenses.
Customer notification of a breach.
Restoring customer identities.
Recovering lost or stolen data.
Repairing damaged computers, networks and other information technology.

Note: It is important to note that the reason cyber liability insurance exists is that most standard commercial liability policies do not cover cyber attacks. They only cover bodily injuries or property damage resulting from a business incident. A company that wants cyber liability insurance will have to add coverage to its current policy or take out a separate policy.

Why Do Companies Need Cyber Liability Insurance?

The main reason a company should purchase cyber liability insurance is that cyber attacks and network hacks are imminent. In fact, most companies do not realize that they are being attacked multiple times a day by unauthorized individuals or entities trying to break into a network. Fortunately, due to virtual private network companies such as Surfshark, these attacks are not successful.

However, even the best security systems, VPNs and software may still fail from time to time when going up against the world’s most talented hackers. Cyber attacks continue to climb at a staggering rate each year. They affect individuals, small businesses, mid-size corporations, and enterprises alike.

When a company gets hit with a cyber attack, the company becomes the target of sharp scrutiny. The public at large focuses on why the company allowed a breach, instead of focusing on the hacker. Eventually, anger ensues and customers start submitting claims and lawsuits against the company for compromising their privacy. Large corporations with millions of dollars at their disposal can still quickly fold if the cost of a class-action lawsuit and data/network restoration is too high.

This is why cyber liability insurance is important. Here are common reasons why a company should consider cyber liability insurance:

Protects against data loss due to a security breach.
Protects customers and business partners who may otherwise be affected by criminal activity.
Protects a company against multiple (class-action) lawsuits.
Instills confidence in investors, finance companies, business partners and customers.
Ensures that a company is compliant with certain industry regulations.
It is considered an example of best business practices within given industries.
Ensures business continuity so that companies do not have to close their doors.
Empowers companies to handle or minimize potential public relations disasters.
Allows companies to learn from their mistakes and develop new cybersecurity strategies.

What Else Should Companies Do?

The best insurance policy is one that a company never has to use.

With this in mind, the best strategy to avoid a costly security breach is to take preventive measures that prevent hackers from penetrating a network. Although there are several solutions for creating a multi-layer digital hedge around a company’s IT infrastructure, a great place to start is by implementing a VPN into a company’s desktop and remote/mobile devices.

A VPN offers several layers of security:

Users can encrypt the transmission of data from sender to user (also known as end-to-end). The most powerful encryption is 256-bit AES Encryption, which is used by Surfshark.
Kill switches automatically shut down a connection if the users, VPN app or provider detects a possible security problem.
DNS and IP Leak Protection that keeps sensitive information inside the network.
Tunneling and IP relocation that gives users complete anonymity when browsing online or sending/receiving information.

VPNs also allow companies to access websites, streaming sites or other virtual locations without being detected or tracked by another entity. Companies that have employees who travel abroad will find that VPNs are exceptionally useful and secure. Their employees can perform online activity without being virtually “followed.”

Companies Can No Longer Operate Unprotected

Companies that do not invest in their online protection put their employees, customers and, in some ways, the public at risk on several layers. In an age where customer information privacy is at its peak, companies need to take extra measures to secure the network and then reinforce these measures by protecting their assets through cyber liability insurance. Not only is this practice enforced in some countries, but it is also fiscally responsible.

Christopher Nichols has always enjoyed using new technology advancements to scale marketing efforts. He believes in data-driven marketing and in practices it in his agency, Strictly Digital. He may be contacted at [email protected].