March 12, 2020
Why Small Firms Need Cyber Cover
by Dan Rafter
What surprises many is that small businesses are more likely to suffer data breaches than are the globe’s biggest companies.
The biggest data breaches, the ones hitting big businesses such as Target, Facebook and Marriott International, generate the headlines. But what surprises many is that small businesses are more likely to suffer data breaches than are the globe’s biggest companies.
So, cyber liability insurance is a must-have not just for giant corporations but also for small businesses. Insurers, then, need to promote this protection to the owners of medical offices, financial planning firms, hardware stores, grocery stores and any other small businesses in their communities.
The numbers make the case
According to Verizon’s 2019 Data Breach Investigations Report, 43% of cyber attacks target small businesses. This makes small businesses the most common target of these cyber crimes, according to Verizon.
A survey released in October 2019 by the National Cyber Security Alliance found that 28% of small businesses experienced a data breach during the prior 12 months.
Even more worrying, the survey found that these data breaches can be devastating to small business owners. The alliance reported that 69% of small businesses suffering a data breach went offline for a time, while 37% experienced a financial loss. And in the worst cases? The Cyber Security Alliance found that 25% of small businesses had to file for bankruptcy protection after a data breach and that 10% went out of business.
Those are serious numbers.
See also: Why Buy Cyber and Privacy Liability. . .
It’s not just outside attacks, either
Customer information isn’t always stolen by outside hackers. Sometimes, employees make mistakes that expose financial or personal data.
How do workers cause breaches? Employees might accidentally send the financial information of a business’ customers to an incorrect email address. Another might lose a cell phone or laptop that contains the personal information of clients. A glitch in a company’s computer systems might leave customers’ information exposed.
This is important information for insurance professionals to share when they are making the case for cyber liability insurance. Otherwise, it becomes too easy for owners to think they can do without this insurance protection.
The cost of another annual premium is no inconsequential matter for owners. Running a small business is no easy task. Owners face intense competition for dollars, often from bigger rivals with larger budgets. They also must adapt to fickle customers who are constantly changing the way they shop. The rise of e-commerce has put a dent in the profits of many small businesses. The task of hiring employees who will remain loyal to the business and of following all local business regulations and permitting requirements can be costly challenges, too.
Because of these financial challenges, owners are constantly looking for ways to trim their expenses.
Fortunately, the cost of cyber liability insurance remains relatively affordable. A report by AdvisorSmith Solutions in 2019 said that the average yearly cost of cyber liability insurance for businesses in the U.S. came in at $1,501. This figure was for a business with a moderate risk of suffering a data breach that was paying for $1 million in liability coverage with a deductible of $10,000.
Such small businesses in Michigan paid an average of $1,233 for a year of cyber liability insurance while those in California paid an average of $1,594.
The costs, then, of a cyber liability policy aren’t inconsequential. But they’re not high enough to outweigh the benefits businesses receive when investing in these policies.
Selling the benefits
What are the main benefits that business owners get when investing in this insurance?
The Insurance Information Institute says one of the most important is liability insurance. If a hacker breaks into a business’ computer systems and steals the personal and financial information of its customers, these customers might file lawsuits. Cyber liability insurance will cover the costs that businesses incur when defending themselves.
The costs of repairing damaged computer systems and recovering lost data can be high, too.
Traveler’s Insurance points to the costs of notifying customers that their information might have been stolen. Traveler’s cyber liability insurance will reimburse businesses for this cost and for any other costs they might incur in answering consumers’ questions regarding a breach.
Nationwide offers three types of cyber insurance coverages, including coverage that reimburses businesses that pay for credit-monitoring services for consumers whose information has been exposed. This is an important coverage: Consumers today increasingly expect businesses to offer them this additional protection, and credit-monitoring services don’t come free.
What if a business must shut temporarily while recovering from a breach? Chubb Commercial Insurance advertises that its cyber liability policies provide business interruption protection, a payout to make up for the loss of income the business suffers if a breach should shut it down for several weeks or months.
A data breach can also cause serious damage to the reputation of a small business. Repairing that reputation, and making sure that customers come back, can be expensive. The Hartford advertises that its cyber liability insurance will help cover the costs that businesses incur when they hire a public relations team after a data breach.
It’s clear that data breaches aren’t going away. It’s equally clear that even small businesses need protection from this threat.