Cyber liability insurance

Data breaches and other cyber incidents are becoming increasingly common and affect businesses of all sizes. While cyberattacks on large companies get the most press, small and midsize businesses are the primary targets because they have fewer resources to protect themselves.

A cyberattack could financially devastate your small business. In fact, cybercrime costs small businesses over $2.8 billion annually.

Cyber liability insurance, also called cybersecurity insurance or cyber insurance, protects your small business from financial losses caused by detrimental cyber risks, such as:

• Data breaches
• Cyber extortion
• Viruses
• Phishing attempts
• Distributed denial-of-service (DDoS) attacks
• Stolen laptops or other equipment

Expenses like ransom payments, data recovery, forensic investigations, regulatory fines, and legal action add up quickly. To protect your business’s reputation and bottom line, you should consider getting cyber liability coverage. It's especially recommended for any business that stores customer data or other personally identifiable information (PII).

Cyber liability insurance coverage typically pays for:

• Security breach investigations
• Data breach response and notification costs
• Fines from state regulatory agencies
• Ransomware demands
• Legal services to assist with compliance
• Legal defense costs for cyber liability lawsuits

Cyber liability insurance comes in two forms, each protecting a crucial area of cybersecurity:

• First-party coverage pays for expenses when data stored by your business is exposed, or your computer systems are hacked.
• Third-party coverage pays for your legal costs if a client sues you for failing to prevent a data breach or cyberattack at their business.

Learn more about first party vs. third party cyber insurance.

First-party coverage, also called data breach insurance, is recommended for most small businesses. It helps your business recover from a data breach or cyberattack, and can often be added to your general liability insurance policy.

A first-party cyber insurance policy typically covers:

Third-party cyber liability coverage is designed for tech professionals who handle cybersecurity or recommend software to clients. It offers protection if a client sues you over a data breach or cyberattack at their business.

This coverage is often bundled with errors and omissions insurance (E&O) in a package called technology errors and omissions insurance (tech E&O), which includes coverage for lawsuits over professional mistakes or oversights. Learn more about the differences between tech E&O and cyber insurance.

Third-party insurance typically covers the cost of:

If your small business handles any type of sensitive information, you should get cyber liability coverage.

By working with such data, you're at high risk for a variety of cyber threats, such as malware or phishing. And if you experience a data breach, the aftermath could get expensive, especially if many customers are affected.

Cyber liability is key for many kinds of businesses, including:

IT professionals, such as consultants and cybersecurity experts, offer a variety of services, from streamlining operations to installing security systems. These diverse services leave them at risk of cyber threats that could potentially lead to a client lawsuit.

For example, a software developer accidentally clicks on a link in an email that downloads a malicious computer virus. The virus encrypts crucial data and demands a ransom for its retrieval. Cyber insurance would cover expenses related to the ransomware attack, including the ransom and the cost of hiring an expert to investigate the attack.

Retail businesses, such as florists and clothing stores, typically need cyber insurance because they handle customer information on digital devices, such as POS devices and client management systems. If they are hacked or experience a data breach, the business could be legally and financially liable.

For example, an e-commerce store gets hit with a phishing attack and their customer data is leaked to scammers. Without cyber insurance, the store would be responsible for paying to notify all affected customers, which can get costly. Cyber insurance would help cover these expenses.

Cyber liability coverage helps healthcare businesses and professionals, such as nurses and chiropractors, manage sensitive patient data and ensure HIPAA compliance.

For example, an emergency services agency experiences a data breach and is sued by a patient for mishandling medical data. Cyber insurance could help the agency navigate the costs associated with a lawsuit that stems from cybersecurity issues.

Cyber insurance can assist financial professionals with legal fees and expenses and provide resources if a financial organization suffers a cyberattack or data breach.

For example, if burglars rob the office of an accountant and steal electronic devices, resulting in a major loss of sensitive client financial data, then cyber insurance would help cover the costs of data restoration and recovery.

Real estate professionals can benefit from cyber insurance in a number of ways. It helps protect their business if a real estate agent or commercial landlord experiences a data breach or other cyber incident that compromises client or tenant data.

For example, suppose a property manager falls victim to a common email scam and accidentally downloads malware that leads to a cyber extortion threat. A cyber liability policy could help them pay for incident response, data recovery, forensic investigations, and even help cover cyber extortion response and ransom payments.

Media and advertising businesses, such as advertising agencies and graphic designers, may benefit from cyber insurance if they handle customer data and information. 

For example, if a social media agency gets hacked and all of their clients' social media logins are compromised, they could be held liable. Cyber insurance would help them navigate the expenses of dealing with a data breach.

A cyber liability policy protects your small business financially from cybercriminals and other cyber risks, but it doesn't cover all vulnerabilities associated with running a business.

To fully safeguard your small business, you should consider business insurance policies to protect against these common risks:

Cyberattacks and data breaches are surprisingly common. They occur when digital security systems, such as VPNs and firewalls, aren't adequately installed, or when employees are not properly trained on how to avoid phishing and ransomware.

Cybercriminals often target small businesses to obtain valuable customer and employee data, knowing they likely don't have many security safeguards in place.

While you can work on avoiding cyber events by engaging in risk assessments, employee trainings to detect social engineering, and other preventative measures, there is only so much you can do to prevent data breaches.

Cyber insurance coverage can help you navigate the high costs of cyberattacks, incident responses, and potential lawsuits.

Cyber liability insurance isn’t required by law, but it can pay for regulatory fines that result from a data breach. It can also cover the cost of hiring an attorney to represent your company during regulatory proceedings.

For example, let’s say your web design business in California suffers a data breach, and all of your client data is stolen. If you aren’t able to fix your security issues within the 30 days required by law, you could be subject to fines. Cyber liability insurance can cover any financial penalties.

In addition to this, it can cover the cost of notifying customers affected by a data breach, which is often mandated by state law.

Several factors can help determine your cyber liability costs, including:

Claims history. Your insurance company will charge you more if you have a history of making cyber liability claims. If you haven’t made many claims in the past, you’ll pay less.

Data access. The more people with access to sensitive information, the more a small business owner will pay for cyber liability insurance. Limiting access to sensitive data or hiring a cybersecurity expert may lower your insurance rates.

Coverage limits. If you need higher coverage limits because your business is higher risk, your policy will cost more. For example, if you’re responsible for multiple servers or a large volume of customer records, you’ll need more coverage.

Security measures. You can save money on cyber liability insurance by creating a risk management plan that includes:

• Securing your data behind strong network security firewalls to prevent a breach
• Using antivirus software
• Using a VPN
• Changing company passwords often
• Implementing Endpoint Detection (EDR)
• Engaging in regular data backups
• Scheduling employee training

There’s no standard cyber liability policy; they contain different terms, conditions, and exclusions. Make sure you clarify the specifics of any potential policies with your insurance agent.

TechInsurance is a trusted insurance expert for all small businesses, including contractors and consultants, with extensive knowledge of the IT sector. We also provide insurance support for a wide range of industries outside of the tech sector as well, including construction, cleaning, nonprofits, and much more.

With TechInsurance, you can easily download a certificate of liability insurance for your small business, often on the same day you buy cyber liability coverage or another insurance product.

This comes in handy for companies that need proof of insurance from their insurance provider to sign a contract right away. Clients may ask to see a certificate of cyber liability insurance before they agree to work with your company.

Contact us if you have questions about cyber insurance coverage or pricing, or want to learn about other small business insurance solutions. Our licensed insurance experts can answer any questions you have and help you get started with the best policies for your needs.

If you want to learn more about this policy, you can find additional answers in our frequently asked questions about cyber insurance.