New data breach research from Experian examines the effect data breaches have on consumers. With the recent wave of cyber crime and spree of data breaches, this is a hot topic. Experts are looking to quantify the long-term effects of data breaches by answering questions such as:
- How concerned are consumers about data breaches?
- Do consumers stop shopping from companies that have been the victim of cyber crime?
To answer these questions, we'll look at two recently published studies that offer some startling information about data breaches: consumers judge businesses based on their data security but aren't willing to take extra steps protect their own accounts.
How Does a Data Breach Affect Your Bottom Line?
Experian's research offers a couple of surprising conclusions about the way consumers feel about data breaches:
- 57 percent of consumers said they would be less likely to have a relationship or would completely discontinue their relationship with a company after a data breach.
- Consumers think data breaches are the third worst event for a company's reputation.
Let's unpack that last bullet point.
From a PR perspective, consumers think a data breach is worse than a big, publicized lawsuit, labor dispute, or government fine. The only two things customers thought worse than a data breach were poor customer service and an environmental disaster (such as an oil spill).
Consumers only consider breaches three percent less offensive than an environmental disaster. Congratulations, data breaches; you are barely better than an oil spill.
The results are clear: in a consumer's mind, data breaches can destroy a company's reputation. More than half of consumers report that they are less likely to work with or shop from a business that has suffered a data breach. Many were willing to cut ties with the business completely.
Why IT Companies Pay When Consumers Don't Take Security Seriously
While this research makes it sound like consumers take data security seriously, the truth is more nuanced. Consumers have a double standard when it comes to data breaches. They expect software and IT solutions to be completely secure, but many customers aren't willing to change their user behavior after a breach.
As it turns out, 55 percent of consumers do nothing to prevent identity theft after a data breach. They don't take advantage of fraud monitoring services and won't monitor their own bank accounts for signs of identity theft. Consumers expect you to do all the work.
This point is unnerving because it shows the uphill battle that many IT companies face. Consumers are either too stubborn to change their behavior to be more secure, or they don't understand how they can actually prevent identity theft and data breaches.
This is why we recommend IT companies consider investing more time in educating their clients about the risks that they can prevent. See our post "The Million-Dollar Client Conversation" for more details.
How Many Customers Do You Lose After a Data Breach?
A FierceCIO report shows that between one-third and one-fourth of consumers are ready to jump ship after a data breach. Here's how those numbers break down in different industries:
- 33 percent of retail customers said they would shop at another store.
- 30 percent of patients said they would switch to a different hospital or medical service provider.
- 24 percent of bank and financial service customers said they would move their accounts to a competitor.
These statistics are important not just to remind you of the lingering effects of a data breach. You can use these statistics to highlight the dangers of data breaches to clients who are unaware of how much a breach could affect their bottom lines.
The Takeaway: Data Breaches Can Cost Clients Revenue and Lead to IT Lawsuits
What happens after a client's data breach leads to lost revenue when a third of their customers leave? Unfortunately, this can cause many clients to sue the company that supplies their IT solutions.
Independent consultants and small IT companies simply can't afford to pay $100,000 or more in legal fees and lawsuit damages. So how do you protect your business from data breach lawsuits?
One way is to get an IT Errors and Omissions Insurance policy tailored for tech businesses. These policies cover data breach, identity theft, and other lawsuits related to problems with software, hardware, and IT solutions.
To learn more about what this coverage includes and how much E&O Insurance for IT consultants costs, see our sample IT Insurance quote for small businesses.