Why Cyber Insurance Shouldn’t Replace Your Cybersecurity Strategy

Lately, cyber has been repeatedly crowned among the top risks facing businesses. Organizations are building up their digital presence more than ever. This hasn’t gone unnoticed by notorious hacker groups and other threat actors. Malicious players are constantly looking for ways to steal valuable intelligence and take financial loot to the detriment of both small and large businesses.

As a result of these dynamic developments, the cyber insurance market has surged in a dramatic upward trajectory. More businesses are turning to cyber insurance to mitigate the risks; so much so, that the cyber insurance market is expected to hit $23 billion by 2025. 

Experts believe that the primary driving factor is the omnipresent threat of data breaches targeting not only large corporations but small businesses and startups as well. Primary buyers of standalone cyber insurance policies face mounting issues stemming from reliance on cloud storage, remote work, and their increasing reliance on interconnected devices.

While some businesses may opt to offload liability to insurers, it’s worth pointing out that cyber insurance can only guarantee effective protection if your existing cybersecurity strategy deters basic and common threats. In this article, we’ll explain what you need about cyber insurance and its role in your cybersecurity strategy.

Why is Cyber Insurance Important for Businesses?

In 2023, the world witnessed an unprecedented 72% increase in data breaches. The resulting aftermath was devastating, with businesses incurring an average breach cost of $4.88 million globally.

Purchasing a standalone cyber insurance policy can bring down these costs following a data breach by providing:

• First-party liability coverage – This refers to your business’s own financial loss in the event of a cybersecurity breach. For instance, fraudsters may trick your organization’s unsuspecting employees into providing sensitive credentials that would lead to an undetected wire transfer from the business’s bank account. Take, for example, this social engineering-driven wire fraud incident that duped a law firm and saw it lose $100,000 to foul play.
• Third-party liability coverage – Cyber insurance also extends coverage for your business’s liability to others. When personal data is obtained by hackers or exposed by unauthorized players, the damages thereof can be outsourced to the insurance provider. Lawsuits, legal fees, and damage to partner systems due to a cyber incident in your business are typically covered by the insurer either partially or fully depending on the contractual terms.

Businesses in the insurance, finance, and manufacturing sectors are most targeted by cyber attacks. Smaller businesses and startups face even greater risks of an attack. Ironically, only 17% of small businesses have cyber insurance.

It’s also worth pointing out that while insurance providers are obligated to provide financial coverage for most incidents, the subject of how an incident came to be could play significantly in their denial of your claim. A majority of underwriters will naturally tend to steer clear of these controversial areas of coverage:

• Insider threats – Someone with access to the organization’s system and records may negligently cause a breach by falling for social engineering tactics or outright stealing the organization’s data through their access. Insider threats are one of the incident types that are covered by cyber insurance alongside extortion and fraud; however, many insurers may opt to deny claims with reference to the circumstances surrounding an insider-initiated incident.
• Social engineering attacks – This is by far one of the most common (and preventable) go-to tactics. Cybercriminals often trick unsuspecting victims into divulging confidential information, usually through email phishing. If your business lacks adequate measures to foil such attacks, e.g. poor or non-existent employee training, you might not be covered.
• Costly downtime and business interruption – This is a bitter pill for businesses that become victims of an incident. Your cyber insurance policy can never fully cover the post-incident cost of downtime and loss of productive capabilities. While you may receive payouts, these would be partial and insufficient to recover from the interruption.

Cyber insurance also can’t help you win back lost customer trust. When the media and information outlets demonize businesses that fall victim to cyber incidents, it can be difficult to win over lost customer trust and repair your organization’s reputation.

Obstacles to Effective Cyber Insurance Coverage

The evolving cybersecurity landscape is one complication affecting the cyber insurance matrix. Claims processing bottlenecks, delays, and rejection of seemingly covered incidents altogether may further arise from poor comprehension of the fine print hidden within the policy.

Add to that the expanding threat landscape and you have a perfect storm. And since cyber insurers typically rely on standardized risk assessment procedures, these may not accurately reflect the latest security threats facing your business today.

What’s more, cyber insurance is often riddled with legalese and technical jargon, which adds complexity to insurance products. As such, many risk analysis experts may find it challenging to understand their insurance coverage and the terms and conditions that apply before the policy takes effect.

Beyond technicality, the process of filing claims with insurers can be nuanced and time-consuming. Right from the start, businesses are required to present extensive documentation; of their incident response plan, cybersecurity strategy, and user authentication mechanisms, among other protective measures in their documented format. With the provided information, underwriters will likely want to follow through with their own thorough risk assessment to understand your risk portfolio.

But despite these sound efforts, underwriters are struggling to model their cyber insurance products after traditional insurance due to the unique nature of current cybersecurity threats.

Don’t Overlook the Importance of Additional Security Measures

While cyber insurance can help mitigate the financial risks associated with cyber incidents, it’s still not enough to provide comprehensive and preventive protection against the next attempt. Cyber insurance works in tandem with your cybersecurity strategy, ensuring that your business isn’t falling for basic and common security threats.

Businesses can take several measures to protect their internet-facing assets from harm:

• Preventive measures – User authentication, regular patch updates, and firewalls fall under this category. With cyber insurance now taking a more proactive stance, businesses are expected to deploy preventive measures against threats.
• Corrective measures – Once a breach has been detected, it’s up to the organization to remediate the issue and get things back on track sooner rather than later. 

If your organization lacks the technical capabilities, your managed IT provider can provide customer support while working round the clock to get systems back online after an incident.

Build a Safer Future for Your Business

Your organization’s security posture is built upon layers of defenses, and cyber insurance is one of these defenses. Still, it can be draining having to juggle third-party supply partners while overseeing the day-to-day operations of your organization. At BoomTech, we help businesses build and deploy highly effective cybersecurity measures and supplement their in-house capabilities with access to advanced tools and expertise.

Ready to get started? Reach out to us today!