What Is Cyber Liability Insurance? (2024)

Small businesses are an attractive target for cybercriminals because they have sensitive information and typically lack the security infrastructure of a larger business, according to the U.S. Small Business Administration (SBA). That includes your customers’ personal information, such as credit card numbers and Social Security numbers.

A total of 88% of small business owners feel vulnerable to a cyberattack, according to a SBA survey. But most small business owners said they have limited time to devote to cybersecurity and aren’t sure where to begin. Cyber liability insurance can be an effective tool to help your small business against cyberattacks.

What Is Cyber Liability Insurance?

Cyber liability insurance is a type of small business insurance for cyber threats or breaches involving computer systems and data. That can include sensitive customer information, such as credit card numbers, Social Security numbers, account numbers, health records and driver’s license numbers.

Cyber liability insurance is also known as cybersecurity insurance or cyber risk insurance.

What Does Cyber Liability Insurance Cover?

Cyber liability insurance covers the damage that your business suffers because of a cyber security breach.

This includes items like investigative services, data recovery and identity recovery. Data recovery covers the costs of recovering your data following a breach. Identity recovery pays for costs and services needed to get control of your identity information following identity theft.

Cyber liability insurance also covers damage impacting your customers or business partners because of the cyberattack. These damages include things like legal fees, customer notifications and settlement costs.

“Cyber liability insurance can provide coverage for costs and expenses related to a number of cyber threat scenarios including, for example, suspected network intrusions and cyber extortion threats, data breach, network or security wrongful acts, denial of service and network outage situations,” says Bryan Smith, vice president of product management at The Hartford.

Cyber liability insurance can also pay for:

• Customer and employee lawsuits due to privacy breaches.
• Lost income because of network outages.
• Public relations costs to restore your company’s reputation after a data breach.
• Ransom payments you have to make to get back your data access.
• Regulatory fines.

What Is Not Covered by Cyber Liability Insurance?

Review your cyber liability insurance policy for exclusions is a good idea. Some common items not covered by cyber liability insurance include:

• Business interruption from systems under the control of third parties. Your policy may not cover business interruption costs from a computer system failure owned by a third party, except for interruptions covered by dependent system failure.
• Criminal proceedings. Your policy may not cover claims brought in the form of criminal proceedings, including criminal action, a criminal investigation or grand jury proceeding.
• Intentional acts. This includes fraud, criminal conduct or knowingly wrongful acts done by you or your employees.
• Prior acts or knowledge. This includes claims you had knowledge of before your coverage started.
• Subsidiary outside of your control. This may include any incident experienced by a subsidiary for which you don’t have a majority ownership or management control.

For instance, The Hartford offers data breach insurance, to which you can add on prior acts coverage to cover claims associated with a breach that occurred before your policy’s start date.

Types of Potential Cyberattacks

A cyberattack on your business could mean:

• Computer attacks. In this kind of cyberattack, your computer system is hacked and compromised.
• Cyber extortion. Thieves may demand ransom payments during an extortion threat to your company’s computer system.
• Data breaches. Breaches occur when critical information is stolen such as personal financial information.

Who Needs Cyber Liability Insurance?

Any business that stores or processes sensitive information should consider cyber liability insurance. Consider coverage if you store data such as customer names and addresses, Social Security numbers, medical records, and financial information such as credit card information.

Here are examples of businesses that could benefit from a cyber liability insurance policy:

• Accountants
• Consultants
• Contractors
• Hair salons and barbers
• IT services
• Marketing companies
• Real estate agents
• Restaurants
• Retailers

If you’re getting small business insurance for a startup, you may be required to have cyber liability insurance to satisfy your board of directors and investors. For example, 50% of venture capital-backed startup founders said their board requires cyber liability insurance and 48% said their investors require it, according to a survey from Embroker.

How Much Cyber Liability Insurance Do I Need?

The amount of cyber liability coverage you need depends on your company’s specific risk. It’s a good idea to talk with your insurance agent to determine the appropriate amount to meet your business needs. Here are some questions to consider:

• Does your company collect, store, send or receive personally identifiable information or personal health information?
• Is your company in an industry with rules about customer information, such as education, finance or healthcare?

How Much Does Cyber Liability Insurance Cost?

The median cost of cyber liability insurance for small business owners is $145 a month, according to Insureon. Your costs will depend on several factors, including:

• Your company’s exposure to cyber risk.
• The amount of insurance coverage your company needs.
• Your company’s revenue.
• Your network security.
• The number of people who have access to your systems and data.
• Your claims history.

Both small and large amounts of cyber liability coverage are available. A small cyber liability insurance policy could be added to a business owners policy. A larger cyber liability policy with higher limits would merit its own standalone policy.

What’s the Difference Between Data Breach Coverage and Cyber Liability Insurance?

Data breach insurance will assist your business if sensitive financial data gets exposed in a data breach. Additional coverage can be added to data breach insurance such as business income insurance, which helps to replace lost income if you are unable to run your business because of the data breach.

Cyber liability coverage is aimed at bigger businesses that need more cyber protection. This insurance helps larger companies respond to cyberattacks and, most importantly, recover from cyber damages as a business.

Cyber Liability Insurance vs. Technology Errors and Omissions Insurance

Technology is a type of professional liability coverage that will cover damages caused by errors in your company’s technology products and services. For example, if your software unintentionally causes a system outage, resulting in lost sales for clients, your technology E&O policy would cover claims regarding this situation.

Cyber liability insurance, on the other hand, covers costs from cyberattacks from outside your company. For example, if your system is hacked, your cyber liability insurance covers the cost of restoring or recreating your data.