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Don Amerman

Don Amerman is a freelance author who writes extensively about a wide array of small business and personal finance topics.

Don Amerman has written 5 articles for SB Informer.
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Is Cyber Liability Insurance in Your Plans?

Don Amerman

July 18, 2014


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As companies -- both large and small -- rapidly expand the amount of business they transact online, they simultaneously increase their exposure to a number of risks associated with Internet communications.

The data at risk in such attacks includes not only that of your business but also the sensitive private data of your customers and suppliers.

 

You May Not Be Covered

If your small business is among those that rely increasingly on online exchanges to do business, you may be surprised to learn that most standard business liability insurance policies don't cover the damages caused by cyber-attacks.

And the number of such attacks is increasing in both frequency and severity, as recent news reports will attest.

While the 2013 data breaches at Adobe, Target, and Pinterest got the lion's share of the headlines, similar cyber-attacks targeted thousands of smaller businesses in the United States and around the world.

And in the vast majority of cases, the smaller businesses are even less likely to be protected against the damages such cyber-attacks can cause.

 

Verizon Report

Verizon's 2012 Data Breach Investigations Report details the basic facts surrounding 855 international data breaches that occurred during 2011.

In all, these data breaches compromised 174 million records. Nearly 72 percent of these data breaches occurred at companies with 100 or fewer employees.

In an October 2012 article for Forbes.com, IT columnist Raj Sabhlok reported that a recent survey by Chubb Group of Insurance Companies revealed that 65 percent of public companies had opted to forgo cyber insurance.

At the same time, the businesses surveyed identified cyber risk as their number one concern.

 

SMBs Face Growing Risk

Many small- to mid-sized businesses (SMBs) feel relatively safe from cyber-attacks, believing that the data they handle is too insignificant to tempt hackers.

What they fail to realize is that cybercriminals, recognizing the relatively lower level of security at SMBs, target these smaller firms hoping to uncover a link to bigger businesses with which the SMBs occasionally interact.

In looking at "What is Cyber Liability Insurance, and Do You Need It?" writer Pablo Conde points out that the average cost of a data breach is $5 million, a number that is likely to grab your attention, particularly if your small business is not now protected by cyber-insurance.

Hopefully, the foregoing facts and figures have at least convinced you that your business, no matter how small it may be, is not immune from cyber-attacks.

The insurance broker or agent who sold you your regular commercial liability coverage probably can help you find a cyber-liability policy that will pick up where your regular coverage leaves off.

Third-Party Risks

Don't make the mistake that some businesses make by assuming that any cyber insurance they might already have automatically protects them against claims by customers or suppliers whose data might be compromised in a breach of your computer network.

 

Some cyber policies are restricted to first-party coverage, which means the insurer will reimburse you for losses of your company's data and that of your employees who are in effect extensions of the company.

However, such policies leave you without any coverage for the legal and financial liability you will face if a data breach of your system puts the data of customers and suppliers at risk.

To protect you against such losses, your cyber policy must also cover third-party risks.

 

Check out the Options

You'll also want to weigh very carefully which policy options you're willing to pay for and are most likely to need based on the nature and extent of the online business you do.

In a piece that appeared on PropertyCasualty360.com, Rick Kam, certified information privacy professional, and Jeremy Henley outlined some of the options that are available under most cyber policies.

For example, you will have to decide whether your policy should include coverage for offline or technical breaches, also known as "paper breaches."

Also, you may choose -- or not -- to cover data breaches that occur as result of lost devices, such as flash drives, laptops, smart phones, and tablets.

 

Credit Monitoring Services

Policies also may pay for credit monitoring services for your company and affected third parties in the wake of a data breach.

However, if your small business deals with sensitive health information that may have been compromised, a credit monitoring service will be of little assistance in determining if breached health data is being misused.

 

If your small business involves extensive processing of sensitive data from customers, failure to protect against the risk of data breaches could invite disaster.

Assess your risks of a data breach and take action to cover all your bases.


                   



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