FAQ: What Is Cyber Liability Insurance?June 4, 2021
What is cyber liability insurance?
I own a small business in Tennessee. The news is saturated with stories about companies being sued after a cyber breach and how devastating the costs are if you’re the victim of this kind of crime. What is cyber liability insurance and how can it help my business? What are the benefits of cyber liability insurance? What are the cyber risks that I face as a Tennessee business owner if I don’t have cyber liability insurance?
Storing, using, and transmitting digital information are a vital part of day-to-day operations for most businesses. And while technology has opened up a whole new world of possibilities and productivity for all of us, it has also exposed your business to a whole new set of potential liability issues that can cost you time and money, and can even shut down your business for good.
If you’re sued because of a data breach or another cybercrime that is inflicted upon your business, you’ll be responsible for paying legal fees, court-ordered judgments or settlements, and any other court-related costs. In addition, you will need to notify your customers of the breach, provide them with credit monitoring services free of charge, and perform all kinds of public relations activities to repair your image. Imagine the costs. Could your business survive?
How Does Cyber Liability Insurance Work in Tennessee?
A: As cyber threats have evolved, insurance companies have responded with a variety of insurance products that respond to the most common and costly cyber liability claims.
Cyber liability insurance is designed to protect your business assets by covering costs related to a cybercrime or a cyber breach. If you’re sued because the incident caused harm to others (customers, business partners, etc.), cyber liability insurance pays for your legal defense costs, as well as any settlements and judgments that you are ordered to pay. This is also known as third-party coverage.
What Else Does Cyber Liability Insurance Cover in Tennessee?
A: In addition, cyber liability insurance may provide coverage for your own costs, including the costs to repair IT systems, recover lost data, pay fines, and notify customers and other parties of the breach. You might also incur public relations costs and other related expenses in an attempt to salvage your reputation. This is also known as first-party coverage.
You can add cyber liability coverage to a business owners policy (BOP) or a commercial general liability (CGL) policy, or you can purchase a customized stand-alone policy that addresses the specific types of cyber exposures that you have.
What are the benefits of having cyber liability insurance in Tennessee?
A: Data can be breached in many ways, from stolen laptops and other portable devices, to rogue employees, theft of digital assets, human error, and more. Any business that handles electronic data (especially personally identifiable information about its customers) is susceptible to cyber threats and can benefit from cyber liability insurance.
Without cyber liability insurance, you’d have to face the costs and the administrative nightmare on your own. But having cyber liability insurance provides an important financial backup. What’s more, cyber insurance in its various forms can also give your clients or customers more confidence in your ability to handle the various types of cyber risks that are out there.
Do You Really Need Cyber Liability Insurance in Tennessee?
A: Target and Home Depot quickly come to mind when you think of big, costly, hacking cases involving data from millions of customers. These companies faced huge losses in both dollars and customer loyalty, and had to spend a great deal more to update systems and repair the public relations nightmare.
Now consider how a data breach could impact a small business that is equally reliant on technology in all of its forms to do business every day, yet may lack the resources to recover if faced with a similar event.
Cyber threats come in various forms, from hackers and personal or business identity theft to seemingly innocent errors and mishandling of information. No matter how it happens, the costs to your business can be devastating and far beyond replacing equipment or updating outdated computer systems. You might face loss of income/business interruption, fines and statutory reporting requirements, personal injury claims, and so much more.
What are the risks of not having cyber liability insurance in Tennessee?
A: If you don't have cyber liability insurance, you'd be facing the following without financial backup:
- Liability claims and lawsuits: You may be responsible for costs incurred by customers, business partners, or other third parties as a result of a cyber attack. You’ll likely have to pay for their damages, and if you’re sued, could be faced with crippling legal costs and seven-figure (or more!) payouts.
- Systems and data recovery: Repairing or replacing computer systems or lost data can result in significant costs. In addition, your company may not be able to remain operational while your system is down, resulting in a significant loss of income.
- Notification expenses: You’ll likely face statutory requirements to notify individuals or businesses that their sensitive data has been compromised. These notifications can be quite costly, depending on the extent of the breach.
- Regulatory fines: You’ll likely have to pay significant fines if a data breach results from your failure to meet certain regulatory requirements.
- Class-action lawsuit: A large-scale data breach could lead to class action lawsuits on behalf of customers or partners whose data and/or privacy were compromised.
- Public relations and investigative costs: You’ll likely incur significant costs to investigate how the breach occurred and who the perpetrator was. What’s more, you’ll need to undertake a public relations campaign to restore your image and reputation and to avoid a future loss of income.
- Long-term credit monitoring: You’ll likely have to provide costly, long-term credit monitoring services for those affected by the breach (e.g., customers whose sensitive data was compromised).
Article Author | Ann Herro
Article Reviewed by | Paul Martin
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