What Is Cyber Insurance and How Does It Protect You?

Cyberattacks can cause financial and reputational risks to your business and clients.

If you're storing more sensitive customer information online, you may want to talk with your banker about cyber insurance options that can help mitigate risks.

The importance of cyber insurance

Recovery from a cyberattack can take months, potentially damaging your business in the long term. IBM's Cost of a Data Breach Report estimates a $2 million average cost for a data breach in 2024, up by 10% since 2023.

In addition to implementing advanced security solutions, here's an overview of what cyber insurance is and how this type of coverage can help mitigate risks for your business.

What is cyber insurance?

Cybersecurity insurance provides liability coverage for your business in the event of a security breach that exposes private data, such as a customer's account, credit card or Social Security number. It's important to note that digital infrastructure often exists outside any general liability insurance you may have because those policies usually only cover property damage and physical injuries involving your business.

Cyber insurance coverage may cost significantly less than recovery costs resulting from a data breach, especially considering the intangible costs associated with reputational damage and loss of customer trust. As a small business, understanding cybersecurity and how online threats can impact your business is crucial to determining what you'll want covered in your insurance policy.

What does cyber insurance cover?

Cyber insurance typically provides coverage for losses related to security incidents, such as malware, ransomware and phishing attacks. This may include the cost of hiring security experts to help you recover data and repair systems compromised by an attack.

Policies may also cover some or most costs associated with regulatory fines or lawsuits from customers or third parties impacted by a breach. This could include identity theft recovery services for victims of an attack.

Additionally, your business may recoup the revenue lost due to a breach in the form of a payout from your cyber insurance provider. However, most insurers only provide benefits for business disruptions directly related to a security breach, such as a ransomware attack that prevents your business from accessing critical systems and performing your normal operations.

Every policy is different, depending on your business needs and how much coverage you can afford. It's important to plan for cyber risks and understand what cyber insurance offers to determine what policy is right for you.

Should you get cyber insurance?

Any business that collects external data should consider cyber insurance and provide cybersecurity training for employees. However, the risks are different for every business.

If you're in a data-intensive industry, such as healthcare, technology or financial services, you should consider a cyber policy no matter the size of your business—especially if large companies outsource some of their operations to you.

However, if you're in a primarily cash- or check-based business, such as construction, and you don't collect a lot of client data or aren't yet profitable enough to offset this insurance cost, you could consider cyber insurance as your business grows in the future.

The bottom line

Hackers focus on profitable businesses of all sizes, even small businesses. If your business collects client data but lacks advanced security solutions or enterprise-grade cybersecurity platforms, you may be a prime target for an attack.

In addition to providing great service, it's vital to protect your clients' information and keep your critical systems secure. Cyber insurance may offer an effective way to keep both your business and your clients’ information better protected.