Though relatively new compared to other types of insurance, cyber insurance is playing an increasingly larger role in both risk management and regulatory compliance.
Cyber threats have become way too common, and even with the best cybersecurity measures, there is still a chance that your company might experience a cyber attack. Cybercriminals have become so crafty that some companies are taking up to 3 months or more to detect data breaches. Data breaches have regulatory consequences as well; you could be subject to fines and/or have certain responsibilities for notifying those affected.
Due to the frequency of security incidents and breaches, cyber insurance has become quite popular. Companies are now coming to terms that their systems can be compromised. Cyber insurance is designed to protect businesses and help them recover from cybersecurity incidents by covering the cost of data breaches, customer reparation costs, denial of service attacks, cyber extortion, regulatory fines, etc. As a result, cyber insurance has come to play an important role in both risk management and regulatory compliance.
Companies have come to understand that cyber attacks are inevitable. These companies are implementing proactive and reactive risk management strategies to help detect, prevent, and respond to these risks. Among these strategies include cyber insurance, which allows companies to transfer risk to their insurance providers.
However, before insurance providers take on these risks, they usually conduct some form of a cyber insurance risk assessment. Here at Zeguro, we conduct this risk assessment through our online insurance quote form and our cyber safety platform. These risk assessments provide a high-level understanding of an organization's security profile based on current standards.
Insurance providers might also request periodic risk assessments. These reassessments, especially upon renewing insurance policies, are crucial to helping insurers verify that the companies they’re insuring are continuing to address their vulnerabilities and risks. This approach seeks to reward mature cybersecurity policies and alleviate some of the financial liability.
In a way, cyber insurance helps companies improve their security measures by constantly assessing their security posture and identifying gaps. In order to get a lower premium, organizations need to work to reduce their risks and implement strong cybersecurity measures. Ultimately, cyber insurance provides a safety net to protect organizations from the financial impact of a security incident.
Insurance companies are just as motivated as the insured companies to prevent cybersecurity threats. For them, it's a win-win situation if cybercriminals don't breach your defenses. Cyber insurance companies can leverage their knowledge of cybersecurity risks to improve cybersecurity by proposing the adoption of new requirements and practices. Insurance companies have thrived by incentivizing their clients to adopt preventative measures that reduce their risk. Organizations that are compliant with all the relevant cybersecurity regulations are likelier to have lower premiums than those who are not fully compliant.
Cyber insurance is priced according to each individual client, and insurers try to reduce their own risk by imposing limits and adding clauses. These clauses may include providing evidence of compliance to laws, stated policies, standards, etc. For example, an insurer might want to know whether your company is PCI DSS compliant, especially if you handle credit card data. If you’re not PCI DSS compliant, your insurance premium could be higher.
Some cyber insurance policies also include coverage for regulatory fines and penalties as well as coverage to help pay for properly notifying affected parties of a data breach which is often a regulatory requirement.
Regulators are beginning to see the importance of cyber insurance in risk management. In fact, California lawmakers have introduced a bill that would require any business that contracts with the state and has access to sensitive data to have cyber insurance.
Cyber insurance is still pretty recent to the market and is ever-evolving. As data breaches and security incidents continue to rise, cyber insurance will play a growing role in both risk management and compliance.