Determining How Much Cyber Liability Insurance Your Business Needs

Aug 24, 2022

Commercial Insurance

Determining How Much Cyber Liability Insurance Your Business Needs

Cyber liability insurance compensates the insured business for financial losses resulting from a data breach or other forms of network intrusion. It covers the business for events like denial of service, ransomware, hacking, and malware attack. 

Importance of Cyber Liability Insurance for Businesses

Cyber liability insurance enables companies to recover and resume operations after a cyber attack on their network or their clients'. A first-party policy covers the following costs:

  • Forensic investigation of the breach
  • Notifying impacted customers
  • Post-breach cleanup and public relations
  • Business interruption losses, including the cost of hiring extra staff or third-party providers/services

If you experience a data breach as a tech provider, an affected client can sue your company for not preventing the loss. In that case, third-party cyber liability insurance can protect your business by covering the following expenses:

  • Defense lawyer's fees
  • Legal costs
  • Compensation awarded to the client by the court
  • Out-of-court settlement

Who Needs Cyber Liability Insurance?

Most businesses need some form of cyber insurance, and the policy is particularly essential for e-Commerce firms that handle and store sensitive data. If you work with personally identifiable information (PII), credit card numbers, or personal contact details, you should consider having proper protection. A single breach can result in huge revenue losses, unhappy customers, or worse. 

Even if you don't sell anything online, you may need a cyber liability insurance policy if you process or store any type of data on the web. The coverage will provide extra protection if you lose confidential employee files or important customer data after a cyberattack. 

Cyber Liability Coverage Limit for Small Tech Firms

If you own a small technology company, consider investing in cyber liability insurance as follows:

  • A limit of $1 million per incident
  • An aggregate limit of $1 million
  • A $1000 out-of-pocket deductible

If you maintain a few thousand records, this coverage will sufficiently protect your company after a data breach. High-risk tech firms like cloud storage providers may need higher coverage amounts, such as $5 million. Also, it's often better to bundle your cyber liability insurance coverage with a tech errors and omissions (E&O) policy that includes first-party cyber liability insurance. 

Cyber Insurance Coverage for Independent Contractors

If you're an independent contractor, you probably don't need first-party cyber liability insurance, as the coverage is for data breaches that occur on your company's network. However, third-party cyber liability protection may be necessary to protect your business against lawsuits. Sometimes, independent contractors must have proof of third-party cyber liability insurance to get contracts from clients. Most of these contracts require a coverage limit of $1 million per data breach.  

How to Choose the Right Cyber Liability Insurance

Cyber liability insurance policies differ in the specific risks covered, and coverage requirements vary from business to business. Here are some crucial considerations to get the right amount and type of cyber liability protection:

  • If you provide tech services to other businesses, consider having both cyber liability and tech E&O policies
  • Consider if you need to include preventive and risk management coverages
  • Assess your social media risk profile
  • If you handle or store sensitive data in the cloud, such as PII, you will need a high coverage limit 
  • Your risk of a third-party cyber liability lawsuit is lower when your tech clients have their own cyber insurance 
  • Your business size (a single data breach can cause hundreds of thousands of dollars in losses for a firm with only a few thousand customers)

To get the right cyber liability insurance for your business, contact our team at Riverbend Insurance today.