Historically, most of a company’s value has existed in physical spaces like warehouses manufacturing facilities, and storefronts. But now, businesses are increasingly relying on data to stand out from the competition and create compelling products. This has created a situation where a large portion of a company’s value exists virtually.
This is why insuring your business against a data breach can be a smart thing to do. We’ll give you more information on how to do this in the sections below.
The Cost of Data Breaches
It can sometimes feel counterintuitive to pay for insurance for something that doesn’t exist physically. But consider the fact that the average data breach costs a company $180 per record breached. And that the average data breach can compromise thousands of records since it takes an average of 197 days to identify a breach.
The bottom line is that a data breach and its various costs could threaten your company’s viability moving forward.
Understanding Data Breach Insurance
Data breach insurance is designed to provide businesses with financial protection in the event that they experience a data breach or another type of cyber threat. There are several types of policies to choose from, some of which offer coverage for client lawsuits and security patching.
We’ll take a closer look at each of the four major options for data breach insurance below.
First-Party Cyber Liability Insurance
First-party cyber liability insurance is the most comprehensive type of protection that you can get in this plan category. The specific coverages that you get from it will depend on the plan that you select and the company that you choose, but most offer coverage for things like:
- Investigations to identify and resolve the source of the breach
- Any business interruptions that occur as a result of the breach
- Regulatory fines and public relations spending that’s needed because of the breach
- Demands from hackers during ransomware attacks
Third-Party Cyber Liability Insurance
Third-party cyber liability insurance protects you against data breaches that you may be held liable for. In other words, you’re not getting protection for a data breach at your company but for a lawsuit you might encounter if you worked for a client and they experienced a data breach.
This type of insurance typically includes coverage for things like:
- Court costs
- Attorney’s fees
- Financial judgments
Technology Errors and Omissions Insurance
You can think of this plan option as a more substantial version of third-party cyber liability insurance. Technology errors and omissions insurance gives you protection from lawsuits based on:
- Work mistakes
- Missed deadlines
- Client data breaches
With this plan, you’re getting the data breach liability coverage of third-party cyber liability insurance while also getting coverage for various work performance issues.
Adding a Data Breach Rider to Your Business Owner’s Policy
Finally, you also have the option of adding a data breach policy to your BOP insurance.
These riders will usually give you some basic protection from data breaches. But you won’t get as much coverage as you would’ve by choosing a standalone data liability insurance plan.
Picking the Best Option For Your Goals
Now that we know your options for insuring your business against a data breach let’s figure out which is best for you. The answer is going to depend on the type of company that you have and the way that it interacts with data.
Let’s say your business stores large amounts of sensitive information about its clients, such as their credit card numbers or social security information. In that case, you would likely want first-party cyber liability insurance because it protects you from the results of data breaches at your company.
Now let’s imagine you run an IT company that does lots of work for big-name clients. It would be better for you to get something like third-party cyber liability insurance or technology errors and omissions insurance.
That’s because if you’re working with large companies, there’s always a risk that something one of your team members does could lead to a data breach. And that could cost millions or more depending on how severe it is and how much it impacts the company.
Finally, let’s say that you have a small business. You don’t do a lot of storing data or working with it. But you do have some sensitive information in your digital files that could do some damage to your customers if it’s stolen.
In that case, something like a cyber liability insurance add-on to your existing business owner’s policy could make a lot of sense. You’ll save money on the insurance cost and won’t need to worry as much about the limited coverage since you don’t have a lot of data anyway.