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Why the Benefits of Cyber Insurance Outweigh Costs

April 29, 2016

The Catholic Archdiocese of Denver reports a data breach that has the potential to affect about 18,000 people in its database.

The Olympia School District in the state of Washington announces it was the victim of a phishing email that released personal information of school district employees, including salary and Social Security numbers.

cyber insurance
CCIG’s Jeff Parent tells Denver business executives that “there’s no reason not to have” cyber insurance.

The City of Baltimore confirms someone stole personal information from an unknown number of Baltimore city employees.

Those are just a few examples of the data breaches reported in the United States in the last half of April alone.

CCIG’s Jeff Parent, Commercial Lines Insurance Advisor, ticked off example after example of recent cyber breaches to launch his talk on cyber insurance at Galvanize in downtown Denver on April 28.

Parent was speaking as part of a cyber security panel for business executives, hosted by the Colorado Business Association and including experts from Barracuda Networks and Envision IT Partners.

“The cyber threat is only growing, and the benefits of cyber insurance outweigh the costs,” Parent told attendees. “There’s no reason not to have it.”

A study by IBM in 2015 found that the total average cost of a data breach is $3.8 million. Other studies have shown the average cost to be as high as $6.5 million.

The costs include investigating the cause of the breach, hiring experts to fix it, setting up hotlines for customers with questions, offering credit monitoring for victims, among other things. Companies also face potential fines and reputational damage costs from the breach.

Some companies mistakenly believe cyber threats are covered under their commercial general liability policy, even though electronic data was excluded many years ago. Although cyber coverage is a relatively new insurance offering, more and more carriers are offering it. The increased competition in the market is keeping the cost very affordable, Parent said.

Cyber coverages can vary greatly from one policy to another, and it’s critical that buyers work with a broker that specializes in placing cyber insurance policies. “It’s not a one-size-fits-all product,” Parent said.

Some of the basic coverage areas offered now include:

  • Privacy liability
  • Forensic investigation
  • Network/ business interruption
  • Extortion
  • Data loss and restoration
  • Theft and fraud coverage
  • Notification costs
  • Crisis management
  • Credit/identity monitoring
  • Regulatory actions

One of the key benefits of cyber insurance is the pre-loss prevention and post-loss services that many carriers provide to their policyholders.

The advisor and underwriter will work to evaluate companies’ specific needs and risk areas by using cyber risk “pressure tests,” risk assessments and other tools to test data, network and supply chain security.

Post-loss, cyber insurance can provide preferred response professionals that will assist companies through the crisis.

“You will pay up to three times more for the necessary response actions if you don’t have preferred vendors from an insurance carrier to guide you through a data breach,” Parent said.

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