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An In-Depth Look at Cyber Insurance: How Much Do Premiums Cost?

December 9, 2021
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An excellent way to understand the difference between cyber insurance premiums and cyber liability insurance is to review the definitions of risks and liability. In the event of a cybercrime or data breach, the insurance company will have the opportunity to offer a variety of coverage options pertaining to the specific costs that may be incurred.

Cyber insurance premiums are determined by a number of business and industry risk models. They can use this information to develop a cybersecurity insurance product that provides adequate coverage at an affordable price. A cyber insurance premium is usually calculated based on a flat base rate or security assessment fee structure. Regardless of the type of coverage, understanding potential losses and liabilities is essential. 

Coverage areas for cyber insurance

When reviewing cyber insurance coverage for a business and the provider, the frequency and severity of cyber events are important factors to consider. There are a number of different types of cybersecurity vulnerabilities that may be present in an organization, which is why providers of insurance offer coverages for a number of other areas. Besides data loss and cyber extortion, these coverage areas also address the impact of payment fraud and cyber extortion on business operations. 

In addition, first-party coverage helps support direct business expenses resulting from the breach of specific data security or cyber security event. Here are a few typical examples of these areas of coverage:

  1. Crisis Management 
  2. Identity Recovery
  3. Forensic Investigations and Accounting
  4. Loss of Business

The goal of first-party coverage is to supplement a company’s existing resources that are deployed for the identification, mitigation, and recovery from a cybersecurity threat. Since an incident could happen at any time, it is important for businesses to develop robust internal crisis management and data recovery processes. 

Third-party coverage is used to mitigate expenses that may result from litigation or regulatory penalties that can be assessed as the result of a data breach or crime. Some common areas of liability covered by cyber insurance include:

  1. Network security liability
  2. Electronic media liability
  3. Unintended defamation
  4. Copyright infringement 
  5. Privacy rights violations
  6. Payment Card Industry (PCI) fines

Some cyber insurance policies offer extended services or a-la-carte items that can be used to customize a particular plan. All of these coverage areas combined will make up the cyber insurance premium quote that is provided. 

Factors That Impact Premium Costs 

In addition to the desired amount of coverage, there are also a number of business factors that can impact a cyber insurance premium. Some of these factors are related to large-scale trends, while others may be specific to a particular business. In simple terms, these items are related to either business categorization or security practices. 

Business Categorization

In order to understand a company’s operation, a cyber insurance provider will usually ask a series of standard questions. This will help them identify the business’s industry, location, and size. The risk of a cyber event may be greater or result in higher costs in industries such as healthcare that manage large amounts of sensitive customer information. 

Security Practices

Insurance can help mitigate a large amount of the potential costs incurred from a data breach or cybercrime. That being said, it is ultimately the responsibility of each company to prepare for and respond to a cyber event. Companies that develop an incident response plan and robust written cybersecurity procedures can improve their ability to recover from a business disruption. Some specific security practices that may impact insurance premiums include:

  1. Presence of an incident response plan
  2. Website and online security 
  3. Data encryption practices
  4. Password management policies
  5. Payment card controls 
  6. Digital media backup and handling
  7. Software updates and patches
  8. Amount of sensitive data
  9. Antivirus protocols
  10. Firewalls and VPNs

These practices could each be assessed by a business to understand the underlying philosophy and methods it follows when it comes to cybersecurity. A loss factor may also directly relate to a disruption in a company’s business, and several companies regularly conduct their own security audits. In terms of covering coverage areas under cybersecurity policies, protecting sensitive information and controlling access to physical and digital resources are directly related to coverage areas. 

There is no doubt that cybersecurity has become a significant focus for businesses of all sizes. Since a cyberattack or a data breach can require significant resources and capital during the recovery process, insurance is considered an affordable way to keep a balance between these risks. The best way to find a cyber insurance policy with a reasonable premium that meets your most critical security requirements is to understand your company’s cybersecurity practices, risk factors, and potential liabilities.