On average, cyber insurance costs $145 per month in the United States. Although, this average varies based on your state, industry, and cyber risk profile. All the same, cyber liability coverage is an additional expenditure that many small businesses are unsure they can afford.
“SMBs always look at the price tag. This instinct makes sense since few have the kind of resources that an enterprise has. The problem is that too many make cost-inefficient decisions by looking at the price tag alone.” – Tom Baum, CEO of DatCom.
That’s why (like any other financial decision) you need to do a risk-benefit analysis when it comes to cybersecurity insurance. However, unlike many other financial decisions, the confounding factors that affect cyber insurance costs may drastically change your own analysis.
It’s best to speak to a financial professional before making any important decisions – but you still need to start the conversation somewhere. So, if you know little to nothing about cybersecurity insurance, this article is here to give you a good place to start.
What is Cyber Insurance?
Cyber insurance is a type of policy designed to protect businesses from financial losses related to significant cyber or technology infrastructure incidents. In the way that home insurance helps you recover costs in the event of property damage, cyber insurance helps you recover costs in the event of cyber attacks, server meltdowns, or massive hardware failures.
Although it can vary significantly between insurance companies, cyber insurance generally may cover:
- Cyber Incidents: expenses linked to specific incidents, including notification expenses and credit monitoring services for any affected customers.
- Business Interruption: compensation for income lost due to a cyber event disrupting your business operations.
- Legal Costs: legal expenditures if your business faces a lawsuit due to a cyber attack.
- Cyber Extortion: dealing with ransomware attacks, including negotiation and ransom payments, if deemed necessary.
- Restoration Costs: the expenses of repairing, replacing, or restoring damaged or lost data and software.
- Compliance Penalties: coverage for fines or penalties that may be imposed by regulatory bodies.
- Crisis Management: assisting with the cost of managing public relations and mitigating damage to your brand reputation.
- Forensic Investigations: funding the investigation to determine the cause and extent of a cyber incident, including hiring experts.
Why Should Small Business Owners Invest in Cyber Insurance?
Small businesses are often more vulnerable to cyber threats compared to larger companies because they tend to have fewer security measures. Cyber insurance helps manage the costs and challenges following a cyber incident, which can be difficult for smaller businesses to afford independently.
The expense of dealing with a cyber incident without insurance can be much higher than the yearly cost of a cyber insurance policy. As you weigh your options, think of it in terms of this formula.
| Potential Loss = (Cost of Incident Response + Lost Income) − Cyber Insurance Premium |
This calculation highlights the financial risk a small business faces without insurance and underscores the value of having a policy in place. The result would show the potential financial loss your business could face without cyber insurance. If it’s significantly higher than your annual premiums, insurance is a more cost-effective option.
What Are The Risks Involved in the Investment?
Investing in cyber insurance, like any business decision, involves certain risks that you should be aware of. Understanding these risks helps you make a more informed decision.
| Enhance Your Security Posture. Lower The Cost of Cyber Insurance! |
One risk is that not all policies are the same. Coverage details can vary significantly between insurers. It’s crucial to understand exactly what your policy covers and, just as importantly, what it doesn’t cover.
Some policies may have exclusions that leave you unprotected in certain scenarios. You should read the policy thoroughly and possibly consult with an insurance expert to ensure your business’s specific risks are covered.
There’s also a risk of complacency. Cyber insurance is not a substitute for effective cybersecurity measures. Relying solely on insurance without robust cybersecurity can be risky. A combination of cyber insurance and strong cybersecurity practices is the best approach.
What You Need to Qualify For Cyber Insurance
To qualify for cyber insurance, it’s essential to meet certain criteria set by insurers. These criteria reflect the insurer’s assessment of your business’s risk level. Here is what you need.
1. Risk Assessment Procedures
Insurers often require a detailed risk assessment of your business’s cyber vulnerabilities. This involves evaluating your current cybersecurity measures and identifying potential risks. A thorough risk assessment shows insurers that you understand your risks and are actively working to mitigate them.
2. Cybersecurity Measures
Implementing effective cybersecurity measures includes using advanced security software, regular updates, strong password policies, and secure data backup systems. Insurers evaluate these measures to gauge how well you’re protecting sensitive data against cyber threats.
3. Employee Training Program
Insurers view regular employee training as a proactive approach to reducing cyber risks. Training should cover how to recognize and respond to cyber threats and the importance of data security.
4. Incident Response Plan
Having an incident response plan in place is another important qualification. This plan should outline the steps to take in the event of a cyber incident, including how to contain the incident, protect data, and notify affected parties.
5. Compliance
Compliance with relevant data protection and privacy regulations is a must. This includes regulations like GDPR or HIPAA, depending on your business’s location and industry. Insurers often require proof of compliance as part of the qualification process.
How to Lower Your Premiums
Even if it does outweigh the cost of an incident, cyber liability insurance costs are still somewhat high. Luckily, there are reasonable ways to lower your premiums.
Here are a few examples.
| Strategy | Why It Matters |
| Regular Security Audits | Identifies and mitigates risks proactively, lowering perceived risk |
| Multi-Factor Authentication | Adds an extra layer of security, reducing the likelihood of unauthorized access |
| Up-to-Date Software | Keeps systems secure against the latest threats, minimizing vulnerability |
| Having a Strong Backup Strategy | Ensures business continuity, reducing potential loss from incidents |
| Demonstrating a History of Secure Operations | Shows a track record of security, indicating lower risk |
Lower Your Risk Profile (and Your Cyber Insurance Premiums) With a Great Partner
Partnering with a proven managed cybersecurity provider is an excellent way to make your cyber insurance costs more affordable. Many insurers see the partnership as demonstrating a lower risk profile. Even if the partnership itself doesn’t do that, the services one can provide easily might.
DatCom, LLC offers comprehensive managed IT services, including cybersecurity, for a fixed, SMB-friendly subscription fee. With us, you gain access to IT support, consulting, network management, and more alongside the cybersecurity you need to lower your premiums.
Talk to us today to take advantage of our offer.
