Top 5 Reasons Why Businesses Are Denied Cybersecurity Insurance Coverage
Neglecting cyber insurance leaves your digital assets vulnerable to cybercriminals. Data theft and similar crimes are on the rise, with more than 85% of Canadian companies affected by successful cyberattacks yearly. Moreover, the financial implications of these attacks are staggering, with the Canadian Cyber Incident Response Centre (CCIRC) estimating the total cost of cybercrimes to be over $3 billion in 2023. Recent reports also reveal that small businesses are increasingly becoming prime targets for cyber thieves.
Cyber insurance is an indispensable component of your risk management strategy, offering a valuable layer of protection. Despite its importance, securing coverage is only sometimes guaranteed. As experienced IT integrators, we've observed a rising trend of businesses being denied coverage. In this article, we delve into what cyber insurance is, why it's important, and the essential policies you need to have in place to make sure your business receives the coverage that you need.
What is Cybersecurity Insurance?
Cybersecurity insurance safeguards a business against liability from data breaches involving compromised sensitive financial and personal information such as names, birthdates, Social Insurance Numbers, etc. It is designed to protect businesses from financial losses that arise from data breaches, cyber-attacks, and other security incidents. The insurance policy covers the costs of investigating, responding to, and recovering from a security breach. In other words, cybersecurity insurance steps in when a business confronts a significant network security breach.
But what exactly does cybersecurity insurance cover? While there are many types of cybersecurity insurance available, most policies typically cover:
Legal expenses and court fees
Investigative costs associated with the breach
Necessary customer notification requirements
Expenses for data recovery
Costs for repairing and reinstating compromised software and systems
Although many businesses opt for general liability coverage, cybersecurity insurance is often excluded from standard business insurance policies. Consequently, your standard business insurance likely does not cover network security breaches, hacking, or similar incidents.
Nevertheless, cyber insurance ensures that a business remains financially resilient in a breach. Sometimes termed ‘cyber liability insurance’, it helps companies in managing the risks associated with data breaches or similar incidents.
Why Your Business Needs Cybersecurity Insurance Coverage
Whether you operate a small family business or a large corporation, chances are you conduct a significant portion of your business online. Most, if not all, business communication methods today include email, online storage and web-based apps.
Additionally, social media is a key platform for managing reputation and customer interactions. If your business deals with financial transactions through an online store, transmitting financial and banking data online is likely a routine practice.
While the internet streamlines business processes, it exposes you and your customers to cyber risks. This is where cyber insurance comes in, and here are four reasons why your business needs it.
You store your customers' data online - Whether through an in-house server or cloud storage, chances are you maintain digital records containing your customers' private information. This data is highly valuable to hackers and identity thieves, who may exploit it to commit theft, financial fraud, or even extort your business for ransom payments.
A data breach is inevitable - Data security experts say that data breaches are not a question of if but when. The harsh reality is that cybercriminals target businesses of all sizes and research indicates that nearly half of all data breaches involve small businesses.
Data security experts attribute the frequent targeting of small businesses by hackers and identity thieves to two primary factors. First, small businesses assume they are too small to attract cybercriminals, failing to protect themselves. Second, cyber thieves are aware of this and take advantage of weak targets.
Data breaches can put you out of business – Without cybersecurity insurance, business owners are solely responsible for covering the expenses incurred due to a breach. As of 2023, an IBM survey of 26 affected organizations in Canada revealed an average cost of $6.94 million per cybersecurity breach. This staggering financial burden often leads many small businesses to close their doors as they struggle to recover from the aftermath.
Your existing business insurance coverage won't cover you in a cyber attack—Many business owners assume their current insurance covers cyber incidents, but general liability policies usually exclude cyber-attacks. Traditional business insurance covers system outages and data loss due to a natural disaster, with the exception of malicious attacks like hacking and employee sabotage.
What are The Top 5 Reasons Why Businesses are Denied Cybersecurity Insurance Coverage?
Here are some of the most common reasons coverage is rejected and how you can ensure you receive the coverage you need.
1. Absence of Preventative Security Measures
One of the primary reasons for cyber insurance rejections is the absence of adequate cybersecurity measures. Insurance agencies refrain from offering coverage to companies that neglect to safeguard their networks and systems because the associated risk far exceeds potential benefits. Suppose a company fails to demonstrate the implementation of security measures, whether internally or through a third-party Managed Service Provider (MSP). In that case, insurance agencies will reject their claim request due to their heightened vulnerability to cyber-attacks.
2. Failure to Demonstrate Adequate Security Measures
Even with strong security measures, companies often require assistance demonstrating their measures to cyber insurance agencies. Insurance providers aim to minimize claim payouts by ensuring businesses take necessary preventive actions against cyber-attacks. They typically request evidence showing that prospective clients are effectively protecting their networks. However, due to the intricate and evolving nature of cyber threats, companies needing more expertise in cybersecurity may find it challenging to prove their system's effectiveness with assistance from a third-party MSP.
3. Inadequate Endpoint Security
To secure insurance coverage, companies must adopt a robust cybersecurity strategy. As reflected in insurance policies, relying solely on antivirus software is no longer adequate protection. Endpoint security is a critical area of concern for insurance agencies. Failure to implement proper endpoint detection and response tools is a common reason for claim denial.
4. Weak Security Measures Within the Supply Chain
A company's cybersecurity defence is only as robust as the weakest link in its supply chain. In today's interconnected technological landscape, attackers often target external partners and providers to breach an organization's systems and data. Supply chain attacks can facilitate network access if partner organizations lack adequate security measures, leading cyber insurance companies to hesitate in offering coverage to businesses partnering with unprotected businesses.
5. Poor Internal Cybersecurity Training and Awareness
Human error is one of the most common causes of cybersecurity breaches, accounting for 95% of incidents. Human error refers to actions such as inadvertently downloading malware or using weak passwords. Even with robust cyber protection measures, your company remains vulnerable if your team members consistently grant attackers internal network access. Failure to incorporate a thorough cybersecurity training and awareness program within your organization may result in insurance agencies rejecting coverage requests.
Ensure Your Cybersecurity Insurance Coverage with Cabco's Managed IT Solutions
Cabco's Managed IT Solutions are tailored to address the security concerns outlined above, ensuring your business meets the requirements for cybersecurity insurance coverage. Our team is dedicated to equipping you with the necessary security measures and preventative strategies. By proactively monitoring issues and intercepting potential attacks before they escalate, we help ensure minimal risk for your insurance policy provider. Reach out to us to learn more.
Ahona Saha
Marketing Coordinator
Cabco