One of us recently asked an in-house counsel friend in charge of litigation for a major company what questions he had about cyber insurance. His response, besides a blank look, was “I’m sure someone else in the company worries about that.” For him, and for you, here are answers to a few key questions.
I know someone in my company has responsibility for cyber insurance issues. Why should I also know about it?
Data and privacy breaches can impact numerous groups within a company including IT security, the privacy program, regulatory compliance, securities disclosure, and customer relations as well as the company’s overall reputation. Part of counsel’s job may be to ensure that the department in the company that “owns” the cyber liability portfolio is aware of all the departments where an event could trigger that coverage — and, vice versa, that those departments know what events should trigger a report to the owner of the cyber liability program, and also know whether the policy has special requirements for the company’s response to an event such as a privacy breach. The easiest example is where a carrier requires certain vendors to be used in a breach response — ensuring that the relevant departments have information about the policy requirements before a crises hits will protect the coverage the company has purchased.
What does a risk assessment for cyber insurance look like?
In view of the almost weekly news reports of major hacks or privacy breaches, no one has to tell corporations today the importance of performing comprehensive data security and privacy program risk assessments to identify weaknesses and gaps. However, that assessment is only part of a risk assessment to ensure that the cyber liability coverage protects the company’s financial resources against losses that could occur directly to the company from a cyber breach, or that could occur because a cyber breach causes harm to others. Besides evaluating the gravity of those risks, companies need to evaluate how a breach might harm the company’s customer relationships, reputation and business continuity. A cyber liability risk assessment should include asking:
Are all the operational, legal and regulatory risks identified?
Is everyone who needs to be, whether inside or outside the company, covered? For example, what is the impact of a breach at a contract cloud provider?
Is everything covered that needs to be? For example, a privacy breach may have costs involved in customer notifications and regulatory fines.
Are there legal issues arising from the policy language used, and how do the insurance policies in the portfolio interact? For example, certain policies might have overlapping coverage or gaps that a cyber insurance policy could mitigate.
Is the company recognizing cyber insurance coverage as controls to mitigate risk?
Adobe, Facebook, Yahoo, Twitter, Google, and LinkedIn all got hacked -- but my company doesn’t hold user names and passwords for customers, so why should I care?
First, hackers can access any electronically stored information. Therefore, any sensitive information, including that of your own employees, may be subject to an attack. Furthermore, what most people don’t know about the Adobe incident is that hackers also stole parts of the source code which might allow the hackers to copy Adobe’s techniques. Although your company may not store customers’ usernames and passwords, hackers could steal important trade secrets or other sensitive information, which could in turn greatly affect how well the business does in the aftermath of a cyber attack. In this day and age, where almost everything is stored electronically, it is important for all companies to have a plan in place in case of a cyber intrusion, which may include having cyber insurance to protect the company in the event of an attack.
My company hasn’t had a cyber breach problem. Is cyber liability insurance something that my board of directors needs to know about?
In short, yes. A cybersecurity breach imposes significant costs on a corporation that may materially affect its finances and its reputation. Depending on the nature of the breach, a company may need to comply with government-imposed notification requirements, and also may face significant civil liability. Consider the far-reaching impact of the major breach Target Brands, Inc. experienced in November and December 2013, when hackers gained unauthorized access to payment card data stored by Target for approximately 70 million credit and debit card accounts. Target immediately commenced an extensive internal investigation to determine the scope of the breach and started to notify consumers regarding the theft of their personal-identifying information.
Boards of directors need to know about significant risks facing their companies and also about the controls in place to mitigate those risks. In today’s environment, especially for a company that handles a significant amount of personal identifying information (such as credit and debit card accounts), or holds key trade secrets, those risks will include cyber breaches. Boards of directors will expect that a discussion of those risks will include responses and controls that mitigate those risks – of which a key component may well be a cyber insurance policy that provides coverage for the investigation that may ensue as a result of a cyber-security breach, compliance with the federal and state notice requirements to consumers, and the financial impact of such a breach such as possible class actions or regulatory fines.