Owners of small technology companies often lack adequate insurance coverage for the data they handle during the course of their work. Why? Because many IT professionals mistakenly think that their property insurance will cover any data losses they incur.
After all, a typical property insurance policy promises to protect against damage to tangible property, which usually includes any loss of use of the property subsequent to the loss. Unfortunately, even though data guides nearly every aspect of our lives in the 21st century, most insurance providers don't consider it "tangible."
In fact, many Property Insurance policies explicitly exclude data and other electronic property, meaning that owners of tech firms need to find another way to protect themselves from the risks they face for their digital assets.
What Is Cyber Liability Insurance?
The good news? Even though Property Insurance won't cover your digital assets, that doesn't mean you have to go without coverage.
Cyber Liability Insurance (also sometimes called Cyber Risk Insurance or Data Breach Insurance) protects tech businesses against the risks that threaten their digital, non-tangible property.
If you don't yet have a Cyber Liability policy in place, here's what you need to know:
- First-party vs. third-party coverage: Most Cyber Liability Insurance providers offer two types of coverage: first-party and third-party. Tech firms typically require third-party coverage, which covers losses associated with the failure to prevent a virus, the transmission of a virus, the exposure of a client's private data, and similar events. First-party coverage is more often applicable to non-tech firms, whose main cyber risks come from storing customer information through credit card databases or online.
- Average cost of a data breach: A study of 2009's data breaches found that the average cost for a business was $6.9 million. More recently, industry analysts have suggested that businesses should proceed with the assumption that they will, at some point, suffer a data breach, and should focus security efforts on minimizing the impact of such an event rather than trying to avoid one altogether.
- Variations in cyber risk coverage: When you're shopping around for Cyber Liability Insurance, be sure to review policies carefully and consult with your agent about your specific coverage needs. While most technology insurance companies offer some form of Cyber Risk Insurance, not every policy covers the same perils. Be sure to choose a policy that covers the risks you face and nothing more.