Special thanks to Suzanne Gladle, Senior Cyber Risk Advisor at McGriff, Seibels & Williams, and Sharif Gardner, head of training at Novae, for their assistance with this article.
The number of cyber attacks and data breaches are increasing, and the costs to respond to such incidents are also increasing. This underscores the importance of cyber insurance, a valuable tool that companies can access that will help defray these substantial costs.
If it isn’t already, cyber insurance should be top of mind for all industries and companies, regardless of size, as they find that they are increasingly vulnerable to a cyber attack and data breach. But though cyber insurance is increasing in prominence and importance, questions about how the insurance responds remain. What should you consider when purchasing a cyber insurance policy? How should you evaluate and compare different cybersecurity insurance policies? Below, we outline some key considerations related to cyber insurance that you should be aware of before embarking on the search for a policy.
1. A knowledgeable cyber insurance broker could be your best ally
Cyber insurance isn’t an area where you want to skimp on the experience of your broker. To find and evaluate the best possible policies for your organization, it’s critical to partner with a broker who has extensive experience in the cyber space. An experienced broker is going to understand your risk, and help you find and possible craft a policy that provides coverage specifically tailored to these risks.
2. Strap in: The underwriting process can be long and complex, but worth it
The underwriting process can be complex, and that’s to your company’s benefit: It means you’re crafting a policy specifically tailored to your operations, customers and risk profile.
During the underwriting process, a broker may facilitate extensive interviews and information-gathering with members of your key business units — financial operations, HR, IT, and others. Often the broker will arrange a phone or in-person meeting with your team and several underwriters from different carriers, so the insurers can ask further questions before offering up their proposed policies. Some underwriters may want to conduct a site visit.
This type of in-depth scouting may seem unusual, but in the cyber realm, it is critical. Unlike a typical property policy, which operates almost at arm’s length (you submit a claim, the insurer pays or denies it), a good cyber policy involves a more hands-on process from both the insurer and the insured. The damage wrought by a cyber incident may vary wildly from incident to incident and its effects could drag on for months or even years. Your cyber insurer will be with you for the long haul, and they’re likewise invested in your organization not having an incident.
3. Select the right privacy counsel
Having the right resources as your disposal is a vital part of strong cyber security hygiene. When it comes to the potential impacts following a breach event, every organization should have the right legal resources engaged in drafting their business continuity and incident response plans. Also, your insurance coverage should allow you to select the counsel of your choice (subject to underwriter approval) and preferably well in advance of any breach event. Clearing this hurdle upfront can assure that you’re partnered with a legal team that knows your business objectives and how they influence the strategic decisions you must make in a breach situation. It’s best to have a privacy lawyer who has experience in addressing all impacts from a cyber attack and can help preserve your business reputation through all stages of breach response.
4. Your vendors could make all the difference
Every company touches vendors in some way. And those vendors are just as vulnerable to cyber attacks as your company — sometimes even more so. It may be possible to tailor your cyber policy to extend to those vendors. You should also have awareness of whether your own company could be viewed as a vendor to others. If you provide services to companies, or if damage to your network could affect those of your customers or clients, then you need to account for vendor liability.
5. Don’t expect coverage for your servers or hardware
If a cyber attack — or your company’s own efforts to repel or address a cyber attack — damages your server or hardware, it’s unlikely your cyber insurance policy would cover repair or replacement. Most cyber policies focus only on intangible assets like data, networks, liability and reputation. For coverage of damages to any tangible assets, look to your general business or property policies.
6. Pay attention to exclusions
Exclusions are key to any insurance policy, but with a cyber policy, they could have a significant impact on your coverage. Pay attention to the insurer’s list of possible exclusions.
Often, cyber policies do not cover criminal fines. Additionally, while they can be written to provide coverage for the insured organization as a result of the intentional acts of a rogue insider, not all policy wordings are alike. It may be possible to write in coverage for punitive damages where permissible by law, but always pay extra attention to the definitions section of the policy.
One huge area of potential exposure for a company relates to unencrypted devices. Some insurers may not cover a breach that originated from an unencrypted device. That’s yet another reason to look closely at your own policies and procedures for electronic devices.
7. Don’t forget to consider “must do” vs. “should do”
It’s one thing to respond to a data breach by doing the bare minimum required by law. It’s quite another to make customers or employees feel whole. Every company enduring a data breach has to strike a balance between “what we must do” and “what we should do.” Thankfully, many cyber policies can cover voluntary services that, although not specifically required by the law, will allow your company to make the appropriate effort to fully support those affected by your breach and, at the same time, potentially mitigate further damage to your reputation, internally or externally.
Every company’s risk profile and every cyber insurance policy is different. The most important thing you can do is work with experienced insurance professionals, legal counsel, and others to ensure you find the right policy and stay vigilant about your end of the agreement (including all cybersecurity policies and procedures).