How Much Cyber Insurance Do I Need The extent of cyber liability insurance you require depends on various factors, including the magnitude and severity of potential cyberattacks, as well as the costs associated with data recovery, settlements, or legal judgments. To establish the appropriate level of coverage, assess your business’s exposure to risk in the digital realm.
Understanding Cyber Insurance Coverage
Cyber liability insurance plays a pivotal role in helping companies rebound from cyberattacks and data breaches, whether they occur within your own organization or impact your clients’ businesses. This coverage encompasses expenses related to responding to breaches, conducting investigations, and mitigating the aftermath of data breaches.
After a breach, first-party cyber liability coverage typically addresses the following:
- Engaging experts to investigate the breach and ensure compliance with regulatory requirements
- Notifying affected customers about the breach
- Managing crisis situations and public relations efforts
- Expenses incurred due to business interruption, such as hiring additional staff, renting equipment, or procuring third-party services
These are expenses that you or your clients would need to cover directly in the absence of a cyber liability policy, and they can accumulate rapidly. Notably, the average cost of a data breach stands at approximately $3.86 million, as reported in a study by IBM and the Ponemon Institute. For businesses serving a customer base numbering in the thousands, these costs could amount to hundreds of thousands of dollars.
In cases where a client initiates legal action against your tech company, alleging failure to prevent a data breach in their business, third-party cyber liability insurance steps in to cover your legal costs, encompassing attorney’s fees, legal defense expenses, judgments, and out-of-court settlements.
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Recommended Coverage for Small Tech Businesses
Most small tech companies opt for a cyber liability insurance policy with specific limits, often set at $1 million per occurrence, a $1 million aggregate limit, and a deductible of $2,500. This coverage threshold is typically sufficient for businesses managing several thousand records, considering that a data breach can cost around $250 per client or customer record.
For high-risk tech companies, particularly those specializing in data storage, it may be prudent to secure a cyber liability policy with higher coverage limits. Although many policies extend up to $5 million in maximum coverage, you can explore the possibility of increased coverage with your insurance provider.
Rather than purchasing a standalone cyber liability insurance policy, many small tech companies opt for a technology errors and omissions policy (tech E&O) that incorporates cyber liability coverage. Since cyber liability is a prominent concern for tech businesses, insurance providers often bundle these two policies.
Cyber Liability Insurance for Independent Contractors
Independent contractors often do not require first-party cyber liability insurance, as this policy primarily pertains to data breaches occurring within the policyholder’s network. However, contractors may find it necessary to secure third-party cyber liability insurance to safeguard themselves against potential lawsuits.
Certain clients may insist that independent contractors possess third-party cyber liability insurance before commencing work on a project, offering clients assurance that the contractor can cover the costs of a cyber liability lawsuit arising from their work. Such client contracts often stipulate a minimum coverage limit of $1 million per occurrence.
Guiding Your Clients on Cyber Liability Insurance
While your errors and omissions insurance extends coverage for data breach lawsuits, it is preferable to avoid such lawsuits entirely. Encourage your clients to implement a robust risk management plan that factors in the financial implications of a data breach.
By ensuring that your clients possess cyber liability insurance, they become less inclined to initiate lawsuits against your tech business while seeking to recoup their losses post-breach. To safeguard your business from potential client litigation, advocate for your clients to either purchase cyber liability insurance or make it a prerequisite for embarking on high-risk projects. The coverage limits for cyber liability policies typically range from $1 million to $5 million or more, affording flexibility based on your clients’ specific needs.
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Cost of Cyber Liability Insurance
The average cost of a cyber liability policy featuring a $1 million per occurrence limit and a $1 million aggregate limit stands at approximately $145 per month or $1,740 annually for TechInsurance customers. Many small businesses (38%) pay less than $100 per month for cyber liability insurance, while 33% pay between $100 and $200 per month.
It’s important to note that the cost of this policy may rise in accordance with the volume of sensitive data your company handles.
To obtain free quotes and compare policies tailored to your business’s unique requirements, TechInsurance offers a convenient online application process, assisting small business owners in securing the right coverage at an affordable price.
