Why Cyber Insurance is More Important Than General Liability

In today's world, cyber attacks are a big threat to all kinds of businesses, from small local shops to larger companies. Imagine a small bakery that gets hacked and loses customer data, including credit card information. The financial and reputational damage can be devastating. This makes cyber insurance more important than ever. Many business owners think their general liability insurance will cover these events, but that's not true. This article will explain why cyber insurance is more critical than general liability insurance and why $1 million in coverage isn’t enough.

Understanding General Liability Insurance

General liability insurance protects businesses from claims involving bodily injury, property damage, personal, and advertising injury. While this coverage is essential, it doesn't cover cyber-related incidents. Many business owners mistakenly believe it will protect them from cyber attacks, which can leave them exposed to significant risks.

The Rising Threat of Cyber Attacks

Cyber attacks are becoming more frequent and sophisticated, targeting businesses of all sizes. The consequences of a cyber attack can include:

• Financial Losses: Costs related to data breaches, ransomware payments, and system recovery.
• Legal Fees: Penalties and fines for not complying with data protection laws.
• Reputational Damage: Loss of customer trust and potential long-term financial harm.

Limitations of General Liability Insurance for Cyber Risks

General liability insurance usually doesn't cover cyber risks, leaving businesses unprotected. Some insurance companies offer cyber endorsements as add-ons, but these often provide minimal coverage and don't address all cyber risks.

The Problem with a $1 Million Coverage Limit

A common misconception is that $1 million in cyber insurance coverage is sufficient. However, this limit often falls short during a severe cyber incident. Here's why:

• High Cost of Breach Response: Responding to a data breach can be very expensive, including costs for investigations, legal fees, and notifying affected customers. These expenses can quickly exceed $1 million.
• Business Interruption Losses: Cyber attacks can stop business operations, leading to significant revenue losses that surpass $1 million.
• Ransomware Payments: Cybercriminals often demand large sums of money, and paying these ransoms, along with restoring systems, can deplete a $1 million policy.
• Regulatory Fines and Legal Fees: Non-compliance with laws like GDPR or CCPA can result in fines and legal fees far exceeding $1 million.

The Issue of Sub-Limits in a $1 Million Policy

Within a $1 million policy, there are often sub-limits that apply to specific types of coverage, like:

• Notification Costs: The cost of notifying customers about a data breach.
• Crisis Management: Costs for managing public relations after a breach.
• Legal Fees: Costs for defending against lawsuits.

These sub-limits can be much lower than the overall policy limit and may not be enough to cover all the expenses related to a cyber attack. Higher main limits on a policy also mean higher sub-limits, which can be crucial in covering all aspects of a cyber incident.

Advantages of Higher Limits in Standalone Cyber Insurance Policies

Standalone cyber insurance policies offer more comprehensive coverage and higher limits, providing better protection. Here are some key benefits:

• Broader Coverage: Standalone policies cover a wide range of cyber risks, including data breaches, cyber extortion, and business interruption.
• Higher Limits: Policies with higher coverage limits ensure that businesses are adequately protected against large-scale cyber incidents.
• Specialized Risk Management: Access to expert services, such as cyber risk assessments and breach response teams, helps mitigate potential threats before they result in claims.
• Customization: Standalone cyber policies can be tailored to meet the specific needs and risks of individual businesses, ensuring comprehensive protection.

Real-World Examples

Consider a small e-commerce business that experienced a significant data breach. The total cost of responding to the breach, including legal fees, notification costs, and business interruption losses, amounted to over $2 million. With only a $1 million coverage limit, the business faced substantial out-of-pocket expenses that threatened its financial stability. In contrast, another business with higher coverage limits in its standalone cyber policy was able to cover all associated costs, ensuring a swift recovery and continued operation.

Key Considerations When Choosing Cyber Insurance

When selecting a cyber insurance policy, it is crucial to:

• Assess Risks Thoroughly: Conduct a comprehensive risk assessment to determine the appropriate level of coverage.
• Seek Higher Limits: Opt for policies with higher coverage limits to ensure protection against large-scale cyber incidents.
• Utilize Specialized Services: Take advantage of specialized risk management services offered by insurers.
• Customize the Policy: Tailor the policy to address the specific needs and risks of the business.

Conclusion

As cyber threats continue to evolve and grow in complexity, businesses must recognize the limitations of general liability insurance and the inadequacy of low-limit cyber policies. A standalone cyber insurance policy with higher coverage limits provides the comprehensive protection needed to safeguard against the ever-present threat of cyber attacks. Business owners should review their current insurance policies and consider increasing their cyber coverage to ensure their operations remain secure in today’s digital world.