How to Protect Your Small Business from Cyber Attacks with Cyber Insurance

How to Protect Your Small Business from Cyber Attacks with Cyber Insurance

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As a small business owner, you might be wondering why you need cyber insurance for your enterprise. Running a business in the 21st century has been digitalized, which gives room for cyber attacks and information theft. According to the Federal Communications Commission (FCC), digital information theft has recently become more prominent, even above physical theft. In the wake of these events, cyber security for small businesses will help small and medium business (SMEs) owners deal with the financial implications when faced with this threat. Let’s see how you can protect your business from cyber attacks with insurance as a business owner.

Why Do I Need Cyber Insurance For My Business?

Just because you run a small business doesn’t mean you’re off the grid for cyber attacks. Matter of fact, small businesses have become the targets of these attacks, and here’s why; small businesses are generally believed to have a weak cybersecurity system compared to their larger counterpart, making it easier to infiltrate. Additionally, most of these small businesses often provide services for large enterprises or groups of people, making them the ideal target.

Cyber attacks aren’t just some minor inconveniences that can be ignored, they are often large-scale attacks that can put you out of business. According to IBM, the global average cost of data breaches was USD 4.45 million in 2023 while 43% of these attacks were focused on small businesses.

“But how do I secure my business from cyber-attacks?” you may ask. That’s where cyber liability insurance for small businesses comes in.

What is Cyber Liability Insurance?

Cyber liability insurance or cybersecurity insurance is a form of insurance for small businesses that protects them against cyber attacks, such as information theft, data breaches, and other forms of cyber attacks. This insurance package is designed to safeguard SMEs from incidents that involve customer’s sensitive information, such as credit card information, social security numbers, account numbers, and other personal information of the customers.

So, if your business handles customer’s credit card information, medical information, social security numbers, driver’s license numbers, email addresses, phone numbers, and home or office addresses, you definitely need to get cyber insurance for small businesses.

What Does Cyber Liability Insurance Cover?

Before digging deep into the coverage of this type of insurance for small businesses, we need to first understand the two types of cyber liability insurance, that is, first-party and third-party cyber liability insurance. This is because the coverage of each of these two types differs greatly.

For example, first-party cyber liability insurance covers data losses that occur on your network or systems. While third-party cyber liability insurance covers the cost of lawsuits and external financial implications incurred by the failure to secure client’s data.

What is First-Party Cyber Liability Insurance and What Does it Cover?

First-party cyber liability insurance, which is also referred to as data breach insurance covers the cost of damages suffered directly by your business as a result of a data breach or cyberattack. This type of  insurance does not cover costs incurred from dealing with the customer.

Generally, first-party cyber insurance helps small businesses cover the following costs:

  • Business interruption
  • Data breach response
  • Ransomware payment
  • Repair and recovery
  • Customer notification
  • Credit monitoring services or anti-fraud protection
  • Cost of hiring crisis management team
  • Investigation into the source of the attack, etc.

What is Third-Party Cyber Liability Insurance and What Does it Cover?

This insurance option is a great choice for information technology businesses that recommend software to clients or manage network security for their clients. Unlike first-party insurance, third-party cyber liability insurance coverage includes the cost of lawsuits from customers or clients or other settlements that involve dealing with the customers.

Overall, third-party insurance helps small businesses minimize the financial impact of a data breach or cyberattack on a client. Its coverage include:

  • The cost of hiring an attorney
  • Cost of settlement for the client
  • Court-ordered damages
  • Costs of responding to regulatory inquiries
  • Government fines and penalties, etc.

Difference Between First-Party Cyber Liability Insurance and Third-Party Cyber Liability Insurance

The major difference between these two types of insurance for small businesses is who suffered the loss. In the former, the insured business suffers the loss, while in the latter, the client suffers the loss.

Here’s a scenario, “Business A” helps a third-party company “Business C” to manage its data and there was a data theft on Business C’s system. If “Business C” decides to press charges against “Business A”, the third-party cyber insurance will cover the costs incurred by “Business A” while dealing with these charges.

What Cyber Liability Insurance Does Not Cover

Since we’ve outlined the coverage of this insurance plan, let’s see what is out of its coverage too. Firstly, cyber liability insurance for small businesses does not cover an oversight on the part of the business owner. Data loss or data theft arising from avoidable mistakes and negligence will be bored by the business owner.

How to Further Protect Your Small Business From Cyber Attacks

Always remember, insurance doesn’t cover for your negligence – Everythinginsurance

Although having insurance coverage for your business is the best way to handle a data breach, why not just try and prevent it? Having an extra layer of defense for your business’ cybersecurity will save you considerable effort and time in dealing with the aftermath of a breach.

Here are some of the ways you can prevent cyberattacks on your business;

Be Conscious and Follow Real-Life Events:

Cybercriminals often leverage recent geographical problems, such as war or natural disasters to infiltrate unsuspecting business owners. Stay abreast of the recent trends and follow information closely so you won’t fall prey.

Fix Obvious Vulnerability Points:

Defends your business against cyber warfare by blocking all noticeable vulnerability points. Hire experts to secure your firewalls when necessary and have trained experts on standby for monitoring.

Secure Your Passwords:

Use strong passwords that can’t be easily guessed and ensure you don’t release your passwords to someone you don’t trust. Also, do not use your password on an untrusted site or app.

Ensure Your Software is Up-to-Date:

Software updates often include critical security patches that protect you from vulnerabilities. While ensuring your software is up-to-date, remember to download the updates from a trusted site. Cracked and patched software exposes you to vulnerabilities and the damages are often severe.

Final Thoughts

Insurance for small businesses is crucial to protect them in incidents of cyber threats. You can employ first-party insurance to protect yourself from internal damages suffered from these attacks, while third-party insurance will protect you from damages suffered from dealing with the clients. However, this is not enough. Additional efforts and plans must be put in place to prevent this occurrence as much as possible. And remember, insurance doesn’t cover for your negligence.

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