Cyber Liability Insurance: What It Is and Why Your Business Needs It

Your business faces potential cyber threats because it operates through the internet. The statistics from 2024 show that ransomware attacks affected more than 60% of U.S. companies. Your business needs to establish strong cybersecurity protocols to defend against potential cyber threats.

The implementation of cybersecurity best practices acts as a preventive measure against future cyber-attacks yet it does not offer protection when an attack occurs. The protection against cyber risks emerges through cyber liability insurance.

The following section explains what cyber liability insurance entails. This article explains both the definition and critical importance of cyber liability insurance for your business.

What Is Cyber Liability Insurance?

Cyber liability insurance, also called cyber insurance, cyber risk insurance or cybersecurity insurance, is a type of business insurance that offers businesses protection against financial losses arising from cyberattacks, data breaches, ransomware attacks, and other cyber incidents.

What Does Cyber Liability Insurance Cover? 

In the same way that auto insurance covers losses stemming from car accidents or theft, cyber liability insurance offers protection from various financial losses that may arise due to a cyber incident, including:

• Litigation fees and defense costs
• Regulatory penalties for non-compliance
• Notification costs
• Lost revenue
• Ransom payments
• Forensic investigation expenses

Typically, most cyber insurance providers provide either first-party coverage or third-party coverage. First-party coverage covers the losses your business incurs directly, such as informing customers or regulators about a data breach.

On the other hand, third-party coverage offers protection against indirect losses, such as claims from customers affected by a cyber incident.

What Doesn’t Cyber Liability Insurance Cover?

While cyber insurance offers protection against various cyber threats, it doesn’t cover everything. Here are some notable exceptions:

• Social engineering attacks that exploit human psychology to dupe people into revealing confidential information
• Losses caused by insider threats, such as negligent or malicious employees
• Data breaches that affect third parties (some insurers provide third-party coverage at an extra cost)
• Cyberthreats that take advantage of a known security flaw
• Losses arising from preventable security issues, such as misconfigurations or poor storage practices

 Why Your Business Needs Cyber Liability Insurance

Your business operates an online store that provides products and services  through the internet. Your business maintains customer information by using a cloud-based customer relationship management system  (CRM). Your company accepts financial transactions through its online operations.

Your business should consider cyber liability insurance coverage if  it operates online. The following discussion explains the main reasons why businesses need cyber risk insurance coverage.

Financial  Protection

The expenses from a cyberattack can be very expensive. The expenses from a severe attack might  reach into the hundreds or thousands of dollars for your business operations. The average data breach expenses for American businesses reached $9.36 million during 2024.

The financial losses your business faces from data  breaches and ransomware attacks and viruses become manageable with cyber liability insurance coverage. This insurance helps prevent your  business from suffering catastrophic financial damage and bankruptcy.

Business Continuity

A cyber threat will seriously harm your  business operations through downtime and business losses. The minute your small business website goes offline because of a cyberattack  results in financial losses reaching $427 while large enterprises face costs exceeding $16,000 per minute.

Compliance

The law does not require American businesses to have cyber security insurance yet experts strongly advise companies  handling sensitive data to obtain it.

Medical practice operators must implement strict privacy measures for patient information according to  HIPAA regulations. The purchase of cyber risk insurance helps businesses fulfill their HIPAA regulatory requirements. 

Reputation Management

Besides negatively impacting your business financially, a cyber threat can severely damage your company’s reputation, eroding consumer trust in your business.

Some cyber risk insurance providers offer coverage for crisis management expenses, such as hiring public relations firms to mitigate reputational damage. As a result, a business that invests in cyber insurance can restore consumer confidence and protect its brand in the aftermath of a cyber attack.

How Much Does Cyber Liability Insurance Cost?

Cyber liability insurance costs vary from one insurance provider to another. However, your cyber security insurance premium will primarily depend on your industry, revenue, number of customers, and claims history.

For instance, if you work in industries that are susceptible to data breaches such as healthcare or financial services, you’ll likely pay higher premiums than a business in a lower-risk industry.

As a rule of thumb, request quotes from multiple cyber liability insurance providers to compare their offerings and ensure you’re getting the most bang for your buck.

Protect Your Business From Costly Cyber Threats

Business insurance products like general liability insurance and commercial property insurance can help protect your business from various risks. However, standard business insurance policies typically don’t provide coverage for losses arising from cyber incidents like ransomware attacks and phishing scams.

That’s why you can’t afford to treat cyber insurance as a nice-to-have thing but rather something integral to the success of your business.

Want to learn more about how cyber liability insurance can be beneficial for your business? Contact us today to speak to one of our cyber insurance experts.