Insurance is a safety net for individuals and businesses that safeguards them against any unforeseen and unfortunate incidents. The need for insurance has been quite pronounced and understood in today’s world which has led to an increase in many young policyholders. However, there is a new kind of threat that is quite grave today and that is the threat to digital data. Any disruption of data can bring an organization to its knees and therefore, it is prudent to secure this asset in a better manner. This is where cyber insurance comes into the picture.
But what is the exact meaning of cyber insurance and why do we need it urgently? Given below is the meaning of this term and other related details of the same.
Also read: How data leaks and cyber crimes affect you?
What is cyber insurance?
With the growing globalization, data is the key to everything. It is the basis for analysis for the organizations as well as other entities like their competitors, investors, and other stakeholders. Having the necessary data can help organizations optimize their resources as well as make targeted investments and alterations to their business plans and achieve their objectives. But when this important piece of the puzzle is vulnerable, the entire business can crumble within a short span of time and with the increased technology and cyber threats, the need for data security and fallback plans has become paramount.
This vulnerability has led to a new stream of insurance, cyber insurance, that has become quite popular in recent times and has attracted many businesses.
Cyber insurance is also known as cybersecurity insurance or cyber liability insurance. This insurance is a contract between the insurance provider and its purchaser to ensure a safety net against any financial risks on account of the use of online services and risks of using the ever-changing technology.
Cybersecurity insurance is a dynamic form of insurance and hence, the insured party can enhance their coverage depending on their requirements. The premium for this coverage can be paid in flexible formats which can be monthly, quarterly, semi-annually, or annual premium payments as per the agreement between the insurer and the insured party.
Features of cyber insurance
- Protection and coverage against any cyber risks like viruses (intentional or otherwise), cyber threats, and cyber crimes.
- The coverage for financial and legal costs
- Ensuring a buffer to the entities (big or small scale businesses) from buckling down due to any cyber attack and loss due to data breach or loss of proprietary information.
- Cybersecurity insurance plans can be easily purchased online and are often offered by insurers providers that already have a presence in insurance formats like E&O (Errors and Omissions) insurance, business insurance, general insurance, commercial property insurance, etc.
Why is cyber insurance important?
Cyber insurance is important for any organization that depends on electronic data and internet-based technology to reach their customers as well as ensure smooth operations of their organization. It can protect a company against first-party or third-party liabilities that have resulted on account of any cyber attack and loss of revenue as well as reputation.
Cyber insurance can provide coverage or protection against any unauthorized access, cyber extortion, cyberbullying, incidents of data breaches, legal fees for privacy violation cases, repairing and restoring compromised computer systems, etc. Therefore, cyber insurance helps businesses to carry out their operations without the fear of coming to a halt due to cyber threats. The restoration of lost data and bringing normalcy to the business can then be the sole focus of the entities rather than worrying about the financial loss from such vulnerabilities.
Who should get cyber insurance?
It is a myth that cyber insurance is important for only big organizations that have a huge volume of data. Small organizations are equally vulnerable to cyber attacks if not more. In fact, small businesses and individuals are far more vulnerable to cyber attacks due to the lack of sufficient firewalls and other security measures that are available to business organizations.
Therefore, cyber security insurance is a must for everyone, whether they are small or big business organizations or individuals that have a mountain of data stored online. Such data can include customer data, their financial information like credit card or debit cards, personal proprietary information, or sensitive information of the organization, etc.
What are the types of cyber insurance coverage offered by insurers?
The cyber insurance stream is relatively new to the Indian insurance market. The key types or formats of cyber insurance available are tabled below.
|Type of cyber insurance coverage||Inclusions|
|First Party expenses||First-party coverage for any immediate financial loss, coverage for mitigation costs, coverage for recovery costs, coverage for system damages, business interruption costs, etc.|
|Regulatory Investigation coverage||This is the coverage provided for costs relating to regulatory investigations, legal expenses, administration costs, etc.|
|Privacy and Data liability claim||Coverage is provided for any third-party legal liability of the company for the damages that are a direct result of any error or mistakes on part of the company. This type of claim also includes coverage for any security, privacy, or data breach that results in any lawsuit, loss due to Intellectual Property Rights Infringement, or defamation of the entity.|
|Crisis Management Expenses||This is a broad coverage for losses or expenses borne by the entity on account of the cost of a forensic audit, security consultation, damage to the reputation, monitoring of credit and identity theft, cyber stalking, counseling, cyber extortion, coordination with service providers, etc.|
Cyber security is the need of the day to protect individuals and organizations from the constant threat of cyber attacks. No matter how strong the firewalls are, there is always a chance of vulnerability that can severely damage an organization. Therefore, although cyber insurance is new in the industry, it is as important as life insurance is to an individual. It is prudent that such insurance is taken at the earliest and not after the business is struck by a cyber attack leaving it at the mercy of the attackers.
No. General liability policies usually cover any property or bodily damages from the company’s goods, services, or operations and generally exclude cyber insurance from its purview.
The usual exclusions from the cyber insurance policies induce any bodily injury or death or damages to any property or item, any act of wilful default or fraud according to any law or rule in effect, any ongoing legal proceeding prior to taking the cyber insurance, any loss arising due to government order, damages due to personal negligence or lack or precautions leading to financial loss or loss of identity, loss of tangible property, loss due to any theft or loss of cryptocurrency, etc.
Yes. Most cyber insurance policies include coverage for loss due to identity theft.
To get cyber insurance, the company will have to first pass the security audit that is performed by the insurer’s inspectors under the guidelines of the IRDAI. After the audit is completed, the insurer will provide the details of the eligible amount of coverage and terms for the same along with the premium amount. The cost of cybersecurity and insurance coverage will depend on the company’s annual revenue and its relative vulnerability to cyber attacks.