Over the years, business owners have become accustomed to purchasing various types of insurance from disaster coverage to general liabilities to help protect their business operations. However, the continued shift to digital operations has brought with it new vulnerabilities that businesses need to address. In 2024 the average cost of a data breach reached a record high of about $4.9 million. While implementing strong cybersecurity measures is the first and most important step to protecting a business’s online operations, cyber insurance could be the next step.
Cyber Insurance: What does it cover and at what cost?
Cyber insurance can help businesses cover costs related to common threats, including cyber extortion and crime, breaches, data recovery, or the replacement of damaged data software, among other liabilities. Providers offering cyber insurance also typically offer first-party and third-party coverage. First-party insurance covers direct cyber-attacks in your business, in addition to expenses for recovery and forensic investigations into the cause of attacks. On the other hand, third-party insurance covers legal fees and damages resulting from an attack by an external party for those outside of your business.
Like all insurance policies, the cost of cyber insurance varies based on factors such as company size and what incidents are covered by the policy. Small businesses may pay less because they have less technology to protect, and the same can be said for companies that don’t leverage technology as extensively as others. Regardless of the price tag, the cost of cyber insurance could very likely be outweighed by the costs of a cybersecurity incident that can’t be budgeted for ahead of time—potentially costing millions.
Is cyber insurance really necessary?
It can be easy to write off cybersecurity threats to an organization, but the reality is that any organization may be vulnerable in the current cybersecurity environment. Last year, the FBI reported a 10% increase in complaints of cybersecurity incidents and a 22% increase in financial losses resulting from these incidents. With new technology like artificial intelligence, the number of avenues for a potential cybersecurity incident is continuing to increase. Businesses should keep this in mind as they adopt new technology and evaluate cyber insurance.
The digital era is well underway, and with it are new vulnerabilities for businesses. While prevention is the first step to addressing cybersecurity concerns, business decision-makers should be constantly evaluating their vulnerabilities and the potential business and financial implications. By staying in tune with their vulnerabilities and the potential outcomes, business decision-makers can then explore the cyber insurance market to determine what degree of protection will best help them ensure the financial security of their organization in the face of a cybersecurity incident.
Gary Woodhurst, VP and Commercial Banker at Synovus in Augusta
