Cyber insurance requirements are a set of criteria businesses must meet to secure coverage against digital risks and cyberattacks. Understanding these is crucial for any organization looking to safeguard its assets from the growing threat of online breaches.
- Cyber insurance demand rises sharply as cyber incidents become more frequent.
- Premiums in this market surge due to supply-demand imbalance, affecting coverage and risk assessment.
- Implementing key cybersecurity measures is crucial to control premiums and ensure sufficient coverage.
What Is Cyber Insurance?
Cybersecurity insurance, also known as cyber insurance, is like a shield for businesses. It’s a deal that helps businesses handle the financial risks linked to cyber threats. Most businesses will face the risk of losing vital data at some point, which can mean big financial losses and damage to their reputation. Cyber insurance steps in to help, with the business paying a regular fee to the insurer.
In simple terms, cyber insurance covers the costs and responsibilities that come with legal obligations after a cyber attack. It’s a tool to reduce risks for businesses dealing with cyber threats like ransomware, spyware, and denial-of-service attacks.
If a cyber attack happens, the insurance pays for legal actions, investigations, and the aftermath. Recent studies show that around 44% of companies have faced data breaches costing about 5 million dollars. Businesses opting for cyber insurance are better prepared and feel more secure.
Here’s what it often covers:
- Money lost when the business is shut down.
- Cash spent on investigating the cyber attack.
- Legal costs.
- Recovering lost data costs.
- Helping customers whose data was compromised (like covering credit monitoring costs).
- Notifying customers about the breach.
Who Needs Cyber Insurance?
Cyber insurance isn’t just for big businesses with lots of money; it’s for everyone. Whether you’re a person or a huge company, having cyber insurance is smart. It helps you stay safe from unexpected cyber attacks that can be really damaging.
The risk of cyber attacks is growing, and even one attack can wreck your business. Paying for insurance that covers these damages is a good investment. Every business, big or small, should have cyber insurance. It ensures that if a cyber attack happens, you can recover the losses and keep your business going smoothly.
Small and medium-sized companies are at risk too. Cyber insurance helps them stay strong even if they face a data breach. It’s like a safety net that helps all kinds of businesses, big or small, to grow and stay competitive, especially after a cyber attack. It not only covers financial risks but also provides support for securing their networks.
Why Cyber Insurance Policies Are Changing
Cybercrime is on the rise, especially with the changes brought about by COVID-19. Small to medium businesses are the main targets, and a cyber attack can cost them a fortune, averaging between $120,000 to $1.24 million.
In response to this, many rushed to get cyber insurance. But with the surge in claims, insurance providers saw their profits drop. To cope, the cost of cyber insurance went up by 22% in 2020 and a whopping 74% in 2021.
Now, in the first quarter of 2022, some companies faced even higher rate increases of 83.3%! However, as the premiums rose, the coverage limits shrank.
To reduce risk, insurance companies started being more strict with their terms. They began limiting the amount they would cover and even introduced exclusions for cyberattacks by “state-backed actors.”
Getting this insurance has also become harder. You have to pass a thorough cyber risk assessment during the application process. It’s all part of the changes happening in the cyber insurance landscape.
Cyber Insurance Requirements Changing in 2023
The increase in cyberattacks in 2021 and earlier years has brought about significant shifts in the cyber insurance industry. Before, this industry was seen as lenient, making it easier for businesses to get coverage at lower costs. However, due to a sharp rise in security breaches last year, the approach to cyber insurance has toughened up.
Let’s break down the changes in cyber insurance resulting from this tougher stance.
Increase in Demand for Cyber Insurance
The surge in cyber incidents during 2021 highlighted the vulnerability of all businesses to cyberattacks. The increase in both the frequency and financial impact of these attacks has led many companies to recognize their exposure to such risks. As a result, there has been a notable rise in the demand for cyber insurance. The National Association of Insurance Commissioners (NAIC) confirms this trend, reporting a significant 21.3% increase in demand between 2019 and 2020.
It’s evident that businesses are becoming acutely aware of the potential financial consequences of a cyber intrusion. In light of a 2021 IBM report revealing an average data breach cost of $4.24 million, the escalating expenses associated with cyber incidents are compelling more businesses to seek comprehensive cyber insurance coverage.
Tighter Terms and Exclusions
Insurance providers are becoming more cautious and thorough when it comes to offering cyber insurance. They are taking a step back to reassess their willingness to take on cyber risk. Additionally, they now demand more detailed documentation to assess a client’s cybersecurity strategies.
Insurers are collaborating closely with cybersecurity experts in an investigative approach to grasp the specific risks an organization faces. Essentially, businesses that cannot provide adequate documentation or lack essential controls might face challenges in securing coverage. Alternatively, they may encounter higher premiums or find their coverage limits reduced.
The cyber insurance market is facing an issue of supply and demand imbalance, leading to an unsurprising rise in premiums. The situation worsened after the Colonial Pipeline and Kaseya attacks, causing rates to skyrocket. In fact, Marsh reported a staggering 174% increase in premium rates due to these events.’
Reduced Cyber Insurance Limits
Due to previous cyber incidents and the subsequent payouts, insurance companies are reevaluating the coverage they offer. Combined with the increased scrutiny and higher premiums, it’s likely that the available coverage amounts will decrease. For instance, a business that could access up to $10 million in coverage might now only receive $5 million.
Besides lowering coverage limits, some insurers are even reconsidering providing coverage at all. This change could be a response to the mounting losses that insurers have faced while processing insurance claims for cyberattacks.
Steps to Maintain Cyber Insurance Coverage and Reduce Premium Hikes
In 2021, cyber insurance costs soared to new heights due to prominent cyber incidents and the resulting substantial insurance payouts. The Council of Insurance Agents and Brokers reported an average premium increase of 27.6% in Q3 2021, following a 25% rise in the previous quarter.
So, what steps can you take to safeguard your coverage and keep the increase in premiums to a minimum? Here are some suggestions to consider:
1. Multi-Factor Authentication (MFA)
Implement extra safety measures like two-step verification (MFA) across your network. This should cover all areas that could be at risk from cyber attackers. These areas include special accounts within your network and any cloud or internet-based applications you use.
2. Endpoint Detection and Response (EDR) and Managed Detection and Response (MDR)
Make use of special tools like Endpoint Detection and Response (EDR) to keep a close eye on your devices and network. EDR helps you quickly detect and respond to cyber threats, just like having a security guard for your digital world. Additionally, consider Managed Detection and Response (MDR) for an even broader defense. MDR watches over your entire network and includes a 24/7 Security Operation Center (SOC) to monitor and scan for any vulnerabilities.
3. Regular Updates and Patches
Ensure that your computer and software get regular updates and patches. Think of it like installing locks and alarms on your house to keep it secure.
4. Secure Backups and Recovery
Insurance providers now want you to have recent backup copies of your important data in a separate, safe location. These backups should also use two-step verification (MFA) to prevent unauthorized access. Along with this, you need a solid plan for recovering your data if something goes wrong. This helps reduce downtime.
5. Prepare for Emergencies
It’s vital to have a documented plan for what to do in case of an emergency, like a cyber-attack. Your plan should outline how you’ll coordinate with your insurance provider, IT partner, legal experts, public relations, and your customers.
6. Train Your Team for Cybersecurity:
Your employees play a crucial role in keeping your business safe. In 2021, many cyber incidents were due to inside criminal activity or employee errors, like falling for phishing scams. Insurance providers now require regular employee training to help your staff identify security threats. You can even run training programs, including simulated phishing attacks, to teach your team how to stay alert. By focusing on controls and understanding your business’s security needs, you can make sure your insurance premiums stay reasonable.
1. How is the price of a cyber insurance policy calculated?
To set the price for a cyber insurance policy, insurers consider a mix of clear-cut facts and more flexible elements.
Firstly, the starting cost is based on four clear facts:
- Type of Business: Different types of businesses (like financial, government, healthcare) have different starting costs.
- Business Earnings: The money a business makes affects the price.
- Data Responsibility: The more sensitive records a business has to protect, the higher the cost.
- Location of Business: Depending on where the business is, the cost might vary. Some places have rules that influence insurance costs.
Then comes the more flexible parts where the insurer can adjust the price based on how the business responds to their questions. For instance:
- Do they Use Multi-factor Authentication (MFA)?: If a business has extra security measures like MFA, it might lead to a lower price.
- How Good is their Response Plan?: A solid plan to handle cyber incidents can also bring the cost down.
Answering these questions well could score discounts of up to 15%. However, the main price factors still tie back to the laws and rules of the state.
2. What Can We Expect in the Future of Cyber Insurance?
Logan anticipates that in the coming six months, prices for policies and the limits on coverage will go up before finally steadying.
“When I say steadying, I mean the prices will stop going up rapidly. I don’t think we’ll return to a time where prices were falling significantly,” Logan explained.
But, if more states follow suit and prohibit organizations from paying ransom demands, it might result in cost savings as ransom coverage won’t be necessary anymore.