Electronic data compromise, theft, or loss can negatively impact businesses, such as loss of revenue and customers. Third-party data theft may cause damage liabilities to businesses. This points to the need for cyber liability coverage to protect organizations and businesses against potential risks of cyber events such as those arising from terrorism. Through cyber policies, the financial losses from cyber incidents are covered. Cyber risk coverage also aids in remediation costs such as customer refunds, legal assistance payments, and crisis communicators (Howard & Cruz, 2017). This paper explores what cyber policies cover, factors to consider during risk level assessment, and whether cyber insurance policies are viable options for cyber risk mitigation.
Cyber Policy Coverage and Exclusion
There are two major cyber insurance policies; first-party and third-party liability coverage. Data breaches and cyberattacks may cause financial losses in small businesses. First-party cyber liability insurance offers financial assistance to help businesses mitigate the impact of these incidents. Some of the costs included communication with affected customers, credit monitoring costs, execution of PR and reputation management efforts, and other recovery efforts. It is specifically important for businesses that keep sensitive client information such as social security numbers and credit card numbers. This policy covers a wide range of insurable events, including “malicious destruction of data, a launch of Denial of Service attack by a hacker, accidental destruction of the database by an employee, wiped out business server caused by a power surge, and data held in ransom.” (Ramanosky et al., 2017)
Third-party cyber insurance policy offers liability coverage for companies in case of mistakes that may lead to a data breach of client information. It is a major policy for tech companies, web designers, software developers, and IT consultants that can easily suffer liability for errors that result in a data breach. This policy covers legal expenses when businesses are sued for causing a data breach or oversight. Other costs covered by this policy include settlements if companies settle with clients outside the court, judgments if businesses are found liable in the data breach, and other court costs such as docket fees. Third-party cyber insurance ensures IT businesses survive the financial impacts of cyberattacks.
There are specific exclusions in standard cyber policy coverage, despite the fact that every policy’s terms. One of these exclusions is lost portable devices, which insurance companies do not cover unless the company modifies this policy if the devices are encrypted. Standard cyber policy insurance does not cover damages from wars or invasions. Another exemption is risks from security maintenance failures as businesses are expected to meet and keep up the minimum-security standards for the approval of an insurance claim. It is common for cyber issues to overlap the existing insurance categories, creating gaps in any company.
Factors to consider in risk-level assessment
It is important to assess an organization’s security risk to help justify security spending. Asset identification is another consideration as this will help identify threats and the possible impact. One of the main difficulties of this consideration is data classification. Programs that show this classification can be very useful during this process, as the organizations provide. Regarding security and compliance, assessing the risk of vulnerabilities and breaches in an organization is a crucial consideration (Causey, 2013). This assessment helps the insurance company discover potential threats that may pose risks to assets in the organization. This process should be thorough, making it specifically hard to execute. Most companies utilize “automated tools which scan the enterprise’s footprint and identify possible vulnerabilities.” (Causey, 2013) Through this process, the insurance company can easily gauge whether it can provide cyber coverage to the organization based on the threat levels. Insurance companies should consider both types of vulnerability and physical or human. An excellent example is an organization whose servers are located on the ground floor, hence prone to destruction by floods. An example of human vulnerabilities is the failure of an organization to educate its employees regarding the dangers of activities such as clicking on an email, hence increasing the threat of malware.
Historical breach data is another crucial consideration for insurance companies. Taking lessons and information on cost and impact from past breaches and applying this to risk formulas is a very important step. The cost values of former breaches can be applied to risk metrics, giving insurance companies an idea of what costs to charge organizations for insurance coverage. It is also important to consider the impact and severity of potential risks. This will help insurance companies to establish a specific risk and apply this to the cost factors. Increased impact severity means that the insurance company will charge more premiums. Natural disasters should also be a consideration for insurance companies. This may include where an organization has housed its servers and whether the chances of different types of natural disasters are considered. Insurance companies need to consider hardware failure in organizations during risk level assessment.
Cyber insurance policies as viable options for cyber risks mitigation in businesses
Cyber insurance is a new and emerging industry with errors and omissions insurance origins. Cyber insurance was introduced to cover the loss of third-party data, such as social security numbers (Wray, 2021). Different policies are available for business, and I believe these policies are viable options for cyber risk mitigation. This is due to several reasons, including allowing cyber risk transfer through cyber insurance policies. These policies also offer cyberattack prevention and mitigation services, helping companies reduce the reoccurrence of cyber attacks (Hartwig, 2014). Insurance companies work with businesses to help understand potential risks and use risk management frameworks to prevent breaches. Insurance policies also provide services for impact evaluation, attack investigation, and implementation of response and recovery plans. Every business with sensitive customer data should invest in insurance policies to ensure that potential cyber risks are properly mitigated.
Conclusion
Cyber insurance is among the fastest-growing sector in the insurance industry. There is an increasing opportunity for this industry to offer cyber risk transfer through cyber insurance policies. The constant development realized in cyberspace increases the need for a more developed cyber insurance market. While more businesses have embraced cyber insurance, more awareness should be created to encourage more organizations to take up these insurance policies. There is a need for policies to align with the existing market dynamics, despite the identification of risks and opportunities in the cyber market. The cyber insurance industry should take this as a chance to cooperate with policymakers to introduce regulations that wholly support the evolution of the cyber insurance market.
References
Causey, B. (2013, January), How to conduct an effective IT security risk assessment. Retrieved from https://security.vt.edu/content/dam/security_vt_edu/downloads/risk_assessment/strategy-how-to-conduct-an-effective-it-security-risk-assessment_2411470.pdf
Hartwig, R. P. (2014). Cyber risks: The growing threat. Insurance Information Institute. Retrieved from https://www.iii.org/sites/default/files/docs/pdf/paper_cyberrisk_2014.pdf
Howard, T., & Cruz, J. (2017). A cyber vulnerability assessment of the U.S. Navy in the 21st Century. Retrieved from http://cimsec.org/cyber-vulnerability-assessment-u-s-navy-21st-century/30405
Romanosky, S., Ablon, L., & Kuehn, A. (2017). A content analysis of cyber insurance policies. RAND. Retrieved from https://www.rand.org/pubs/external_publications/EP67850.html
Wray, Christopher. (2021, September 22). Worldwide Threats to the Homeland: 20 Years After 9/11. Statement Before the House Homeland Security Committee. Retrieved from https://www.fbi.gov/news/testimony/worldwide-threats-to-the-homeland-20-years-after-911-wray-092221
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