Cyber Risks Faced by Small Business Owners
Small business owners’ anxiety levels are in the red zone because of the barrage of news about hacking incidents that target businesses’ ongoing operations. While those attacks are scary, the most serious cyber-risk a small business owner faces is a privacy breach that causes the loss or disclosure of customers’ personal identifying information (“PII”). And, unfortunately, internal negligence is more likely to cause an unintentional privacy breach than an attack by an external hacker.
Small business owners should be on guard against:
employees inadvertently disclosing passwords, or not following password security guidelines;
insufficient protection for computing devices that contain PII so they may be subject to loss, theft or unsecure disposal;
email that is misdirected or inappropriately published; and
internal technology weaknesses such as outdated security protocols or software or hardware failure.
Indeed, sometimes, old-fashioned paper is the culprit of a breach where a company does not have sufficient controls over what data can be printed, and how confidential paper should be treated. The information to be concerned about includes: credit card information, social security numbers, birthdates, driver’s license numbers, banking information, employment information, insurance information, and medical records.
Where PII is improperly released, small businesses face a significant liability. Not only do small businesses often have a legal obligation to notify customers of the loss of PII (thus, causing the small business to incur significant notice costs and damaging their reputational value), but they also may face third-party liability or government sanctions. These liabilities may be significant and could impair a small business’ ability to operate, much less grow.
Data Protection Policies and Cyber-Insurance Coverage
Cyber-insurance coverage is relatively new to the market and insurance providers are creating an array of products that address the risks faced by businesses in different industries. The types of coverage are typically divided between first-party coverage which protects the policyholder itself, and third-party coverage, which protects against the claims of a third party against the policyholder. First-party coverage includes: (1) loss of digital assets; (2) non-physical business interruption; (3) cyber extortion; (4) cyber terrorism; and (5) security event costs. Third-party coverage includes: (1) network security and privacy liability; (2) employee privacy liability; and (3) electronic media liability.
There is specific cyber-insurance for privacy breach incidents. This insurance could pay for the immediate response to the breach to stop the damage, reimburse the costs of replacement of hardware or software, and the costs to investigate the scope of the breach. This insurance could also pay for the costs of providing notice to people whose information was disclosed, and may even have preferred companies that it favors for providing that notice. Business interruption costs may also be covered, as well as reimbursement for the costs of responding to investigations or work to counteract negative publicity.
Small businesses should examine the types of data that they are handling, work with technology security professionals to ensure the protection of that data, and investigate the type of cyber-insurance coverage that is tailored to their needs. Cyber-insurance coverage is not a one-size fits all type of policy.
The Best Recourse Against Hackers
Malicious cybercrime attacks are a priority for law enforcement. However, the reality is that businesses that are victims of these attacks have little recourse against hackers even if they are identified and prosecuted. The best recourse that business owners have is protecting against future cyber-attacks through technology security and insuring against cyber-attacks or privacy breaches that may result from a variety of causes, so that such events do not adversely impact a business’ financials.
Business owners need to recognize that cyber-attacks and privacy breaches are no longer an “if,” but a “when.” Given that cyber-attacks will occur, a business owner should be prepared through adequate cyber-security measures and cost-mitigation measures, including through insurance. Not only will these practices reduce the potential costs, but they also may mitigate the scope of third-party liability.