In this blog article, we discuss what a business interruption is and how cyber insurance can help your organization deal with the financial consequences of a business interruption.
Many businesses have moved online, and digital technologies have become their lifeline. A cyber attack or network disruption can slow or sever the connectivity and thus interrupt essential business processes. Fortunately, companies can get insured against such cybersecurity threats.
When there’s a system failure, and a company has to face a direct loss of income, it’s called business interruption (BI).
The failure could be due to many reasons such as criminal hacking, malicious inside elements, and distributed denial of service (DDoS) attacks.
Typically, an insurer will cover the insured’s profit that the latter would have earned if there had been no service interruption. Business interruption losses usually include the costs to run the business, such as the payroll expenses and utility bills, along with the costs to reduce the effect of the loss.
For smaller organizations, business interruptions can be devastating. If they have to shut down their business without insurance, they may never be able to reopen. This makes cyber insurance even more important for small to medium businesses.
In the olden days, property insurance policies covered business interruption in some cases. Insurers considered physical damage to tangible assets as a loss. Such losses could be due to fire, earthquake, and other things.
Some insurers have brought forward business interruption coverage as part of cyber insurance or as stand-alone business interruption insurance policies. There doesn’t have to be a complete shutdown to trigger the coverage. Instead, a system slowdown due to network issues or malicious elements can also be classified as a trigger.
Some cyber insurance policies that cover business interruption include a time deductible of 72 hours, or a waiting period before coverage begins. A 72-hour time deductible may be feasible for natural calamities such as hurricanes, but for a cyber event, a 3-day time deductible can be too long.
In the case of business interruption, time is of great importance. Income loss can continue to grow until the system is back to normal, and the same level of service is restored as it was before the incident. Most cyber insurance policies have a waiting period between 6 and 24 hours before recovery can begin.
A loss of access or even a slowed down network can lead to lost revenue. Any kind of disruption in work, even if it’s for a short duration, can be costly. Here are a few examples:
Cyber insurance can come to the rescue in such cases. It helps in protecting your business from many cyber events, such as:
If your business is unable to perform regular business processes, a cyber insurance policy can be helpful. This coverage comes with many benefits, such as:
Another important concept in cyber insurance is Contingent Business Interruption (CBI) loss coverage. This insurance covers the losses that are incurred when the insured loses income because of interruption in the service of a shared resource. This shared resource could be a cloud space or a processing utility. To protect your business against such losses, make sure you check your vendors’ details and confirm that they have adequate coverage. You must also ensure that you have indemnification in your contract with them.
Your organization’s workflow can be interrupted due to many reasons. It could be your system that’s down due to a network failure. It could also be a loss to your vendor’s system that indirectly impacts you. In any kind of loss, you’ll have to file a claim with your insurer.
Here are some best practices to follow before and while making a claim:
Calculating losses is a complex, often difficult, and yet important issue in cyber insurance. Depending on the type of loss and scope of your policy, the insurer may assign their specialists to audit the claim.
When it’s time to purchase cyber business interruption coverage, you should openly discuss your concerns and requirements with your insurer. It’s a complex issue, because there is no uniform approach to cover business interruption scenarios. Always read the policy in detail to understand what it covers and what your responsibilities are in filing a claim.