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Often purchased as part of a Technology Professional Liability policy cyber liability
insurance coverage is designed to protect IT businesses against liability
and expenses arising from the theft or loss of data, as well as liability and expenses
arising from a breach of data security or privacy, particularly when you are hosting
client information. While your clients should carry their own cyber liability for
the data and personally identifiable, confidential information stored on their servers,
IT firms are wise to protect themselves with their own third-party coverage as well.
Cyber liability refers to an IT firm’s liability when it
is responsible for the security and privacy of a client’s data stored on the
IT firm’s servers. Cyber liability insurance policies typically include coverage
The costs associated with theft or misuse of client data can be immense: The average
cost to a U.S. business for a data breach in 2009 was $6.7 million, according to
Ponemon Institute, a research center dedicated to privacy, data protection,
and information security policy. Losses can include direct costs involved in investigating
what happened, notifying those affected, credit monitoring, litigation, and government
fines, as well as indirect costs such as lost business and damage to the company’s
reputation and stock price.
If your client accuses your IT company of causing or failing to prevent a breach
of data hosted on your systems, you could be held responsible for these expenses.
Cyber liability insurance protects IT businesses that host personally identifiable
information or private data. Companies that provide software as a service, web hosting
services or data storage services are at the most risk, but any IT service provider
that handles private client information should consider purchasing this coverage.
For example, an IT consultant who stores a client’s private employee files
on a laptop temporarily is at risk for damages if that laptop should be stolen.
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