The slightly dubious term “cyber liability” is one that has evolved over the years. However, in the current technological climate, it denotes a company and non-profit organization’s responsibility for its customers electronically controlled information. And with more companies going paperless than ever before, cyber liability is an especially pertinent topic.
Awareness was raised in 1996 with the Health Insurance Portability and Accountability Act (HIPAA), and then again in 2003 when privacy rules were enacted under HIPAA. Since that time, 46 of the 50 states have created amendments to address the responsibility of companies and state agencies for any compromise of a resident’s personally identifiable information (PII).
From names and addresses to social security and credit card numbers, the PII handled and controlled by companies is astronomically important, and—if breached—unbelievably costly. The average cost of a data breach in 2013 was $3.5million, not including the costs to the company’s reputation. A cyber breach is a traumatizing experience that damages customer loyalty and tarnishes the company’s brand image. Moreover, with the increasing frequency of occurrences, and the degree to which businesses use electronic data handling – from online forms to company databases – it’s more a question of when a breach will occur than if.
More often than not, the breach is instigated by either a malicious insider or a criminal attack. These are not only the most common, but the most costly. Research shows that global companies are also very concerned with malicious code and sustained probes. These two threats have increased significantly in recent years, with companies estimating an average of 12 sustained probe and 17 malicious code occurrences each month.
Cyber Liability is not limited to large businesses and fortune 500 companies. Any organization with PII is liable for its privacy and protection. Hotels, retail stores, schools, state agencies, charitable organizations, restaurants; any organization could own data that would put them at risk for a data breach.
Even when a third party is involved, the data owner is still legally responsible for the security of customer information. Moreover, cloud providers present another risk because the data owner is unable to take full control of how their data is handled.
Companies affected by a data breach will find that their greatest cost is maintaining the customer base. Loss of reputation and customer loyalty can result in crippling customer turnover. Considerable investment is required of the company to repair brand image and develop new business. Reports also show that certain industries experience a higher customer turnover, such as healthcare, pharmaceuticals, and financial services.
Be prepared. Companies should have plans in place to respond appropriately in the event of a breach. Larger companies often have whole departments devoted to analyzing and mitigating risk. Research confirms that companies who were prepared to respond were able to significantly reduce their costs. Companies should also consider investing in cyber liability insurance. Reports show that cyber liability insurance plays a significant role in managing risk and improving the overall security of a company.
Cyber liability insurance is a unique form of insurance that protects companies against the costs incurred by a data breach, including hackers and other serious risks. Several policy types exist, and you should discuss the options with your Unland agent. Some policies offer what’s known as “first party” coverage, which covers costs like business interruption, notifying customers, and PR and brand repair. This is especially significant for smaller businesses. With a loss of steady cash flow often resulting, cyber insurance can provide enough cash on hand to keep things running while you put out fires and repair the damage. Many large companies may have funds to stay afloat, but a data breach for a small business can close the doors for good.
Most liability insurance excludes losses incurred as a result of internet usage. Cyber liability is a great way to cover exposure left by general policies. Cyber liability insurance is also fairly affordable. And compared to the risks without it, it’s almost a no-brainer.
Don’t leave your company at risk. Start preparing now. When the time comes, you’ll be glad you did.
Contact us today!