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Cyber Insurance: Protecting Your Small Business (2024 Guide)

In today’s digital world, the threat of cybercrime looms large for businesses of all sizes. Small businesses, in particular, are increasingly becoming targets due to their often inadequate cybersecurity measures.

Cyber insurance emerges as a consideration for safeguarding your business against the financial ramifications of a cyber attack.

What is Cyber Insurance?

Cyber insurance is a policy designed to cover financial losses incurred by a business as a result of a cyber incident. This type of insurance is particularly relevant for businesses with digital footprints, as any entity connected to the internet faces potential risks such as malware attacks, denial of service, and data breaches.

Why Small Businesses Need Cyber Insurance

Despite the escalating threat of cybercrime, many small business owners underestimate the importance of cyber insurance.

The consequences of a cyber attack can be as severe, if not more so, than traditional risks like theft or fire. With research indicating that 2 out of 5 small businesses have experienced a cyber incident, it’s clear that no business is immune.

Cybersecurity technology alone is not foolproof, with 90% of breaches attributed to human error. This underscores the need for comprehensive coverage beyond antivirus software.

What Cyber Insurance Covers

A cyber insurance policy typically covers various costs, liabilities, and losses associated with a cyber incident. These may include:

  • First-party losses: Costs incurred by the insured business, such as forensic investigations, system restoration, data recovery, and notification of affected parties.
  • Third-party liability: Financial losses suffered by third parties, such as clients or suppliers, due to actions or negligence by the insured business.
  • Incident response: Access to specialists who assist in managing the aftermath of a cyber attack, including legal advice, regulatory compliance, and public relations support.

Cost of Cyber Insurance

Like any insurance policy, the cost of cyber insurance depends on factors such as the size of the business, revenue, industry, and specific risk factors. Additional considerations include potential downtime, types of data stored, likelihood of human error, and reliance on automation.

Mitigating Risk with Cyber Insurance

While cyber insurance is an essential component of risk management, it should complement other preventive measures. Businesses must invest in technical solutions such as security software and multifactor authentication, as well as prioritize ongoing training and awareness among employees. Staying informed about cybersecurity developments and relevant legislation is also crucial.

Cyber Risk vs. Cyber Liability Insurance

While the terms may vary among insurers, cyber risk insurance typically provides broader coverage, including both first-party and third-party liabilities. In contrast, cyber liability insurance may focus solely on third-party liabilities arising from cyber incidents. It’s essential to clarify the coverage included in your policy to ensure it aligns with your business’s needs.

Cyber Insurance Options for Small Businesses

When selecting a cyber insurance policy, small businesses should assess their specific risks and potential losses. Aon offers access to CFC’s Micro SME Cyber Insurance product, tailored for small businesses.

This policy includes coverage for incident response, system damage, business interruption, network security, privacy liability, and third-party losses up to certain limits.

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