Cybersecurity Insurance Landscape
Cybersecurity insurance remains a relatively unfamiliar concept for many small and medium-sized businesses (SMBs). Originally introduced in the 1990s, it was primarily designed to provide coverage for large enterprises, focusing on risks like data processing errors and online media liabilities.
Over time, these policies have evolved significantly. Today, cyber insurance is tailored to address the typical costs associated with data breaches, such as remediating malware infections, recovering compromised accounts, and more.
Modern cybersecurity insurance policies typically cover expenses like:
- Recovering lost or compromised data
- Repairing damaged computer systems
- Notifying customers about data breaches
- Offering identity theft monitoring services
- Conducting IT forensic investigations
- Covering legal fees
- Paying ransomware demands
The frequency and cost of data breaches continue to rise. In 2021, the number of recorded breaches hit an all-time high, and by the first quarter of 2022, breaches had increased by 14% compared to the previous year. Unfortunately, no organization is immune—not even small businesses, which often face devastating consequences. Approximately 60% of SMBs shut down within six months of experiencing a cyber incident.
The growing threat landscape and rising breach costs have driven significant changes in the cybersecurity insurance market. As businesses navigate this evolving industry, staying informed about key trends is essential to ensuring adequate protection.
Key Trends in Cyber Liability Insurance
Rising Demand
The average cost of a data breach now stands at 9.44 million. As these expenses escalate, so does the demand for cybersecurity insurance.
Companies across all industries are recognizing that cyber insurance is as critical as traditional business liability coverage. Without it, even a single breach can be catastrophic. This surge in demand has led to greater availability of policies, offering businesses more options when seeking coverage.
Higher Premiums
The increase in cyberattacks has resulted in higher payouts for insurance companies, prompting them to raise premiums. In 2021 alone, cyber insurance premiums surged by an astounding 74%.
Factors contributing to this spike include lawsuits, ransomware payments, and other remediation costs. Insurance carriers are unwilling to incur losses on these policies, leading to steeper prices—even as the need for coverage becomes more urgent.
Exclusions for Certain Types of Attacks
Some insurers are now excluding specific types of attacks from their coverage. For example, “nation-state” attacks—those linked to government-sponsored hacking groups—are becoming harder to insure against.
In 2021, 21% of nation-state attacks targeted consumers, while 79% focused on enterprises. If a policy excludes these types of incidents, it’s crucial to proceed with caution.
Similarly, ransomware coverage is being dropped by some insurers. Between the first and second quarters of 2022, ransomware attacks rose by 24%. Insurers are increasingly reluctant to cover organizations with inadequate security measures, shifting the burden onto businesses to strengthen their backup and recovery strategies.
Stricter Qualification Requirements
Obtaining cybersecurity insurance is no longer guaranteed. Insurers are imposing stricter qualification criteria, particularly for businesses with poor cybersecurity practices.
Key factors insurers evaluate include:
- Network security measures
- Use of multi-factor authentication (MFA)
- Policies for Bring Your Own Device (BYOD) and device security
- Implementation of advanced threat protection tools
- Automated security processes
- Backup and disaster recovery plans
- Administrative access controls
- Anti-phishing strategies
- Employee cybersecurity training
Applicants often face lengthy questionnaires assessing their cybersecurity posture. Working with an IT provider during this process can help ensure accurate responses and identify areas for improvement.
While this may seem like a daunting task, reviewing your cybersecurity practices before applying for insurance can pay off. It not only helps you qualify for better rates but also strengthens your defenses against potential threats. A comprehensive cybersecurity review can save time, reduce costs, and enhance your organization’s resilience.
