How Does Cyber Insurance Work and What Does it Cover?

How does cyber insurance work?

You have a small business that sells leather goods online and you collect customer data including credit card numbers. You are hacked by cybercriminals who steal all this information from 1K of your customers' accounts- making them victims, too! Your first instinct is to shut down the website so no one can no longer buy anything...but what should YOU do?

Cyber insurance can help protect you against the costly consequences of a cyber attack. In this scenario, not only are customers’ data held ransom but also your website and customer accounts - taking hits to both trust levels as well as revenue stream losses if you can't get everything back online fast enough, or at all! Restoring everything will cost money; luckily there's coverage for all types of events with some great policies out there.

To ensure your company remains protected, it’s important to take out the appropriate level of cover and pay a monthly premium. In cases where you may not realise there has been an attack onsite until much later, many insurers allow claims to be made from date discovered, as long as these notifications are made quickly enough.

What does cyber insurance cover?

There are two types of coverage  for cyber insurance, but this depends on the type of business you have. You can take out one or both:

First-party insurance - First-party cyber insurance is a great way to protect your company from the costs of data breaches. It will cover losses directly or indirectly caused by criminal activity, as well as any downtime to your business resulting in lost customers and revenue.

Third-party insurance - Third-party insurance covers the assets of others, like your customers. For example, hackers may steal their information or damage it in some other way, block their accounts or compromise their profiles and websites.

However, if your business doesn’t handle a lot of customer data electronically, third-party insurance might not be necessary for you.

What is not covered by cyber insurance?

Cyber insurance policies have their exclusions, but like any type of coverage it's important to know what you're getting before purchasing. Cyber-related accidents or events typically aren't covered by standard homeowner policies because they usually require an additional level of protection, but in general insurance providers do not cover:

Potential future lost profits - Cyber insurance covers money lost during business downtime. However, this doesn't extend into future lost profits. For example, if your turnover at the end of year is going to be less than projected because of a data breach, you can’t make a claim on cyber coverage for these decreased earnings as they were outside ‘perils thereof'.

Loss of value due to intellectual property theft - Losing your IP can result in lost opportunities, revoked contracts or the devaluation of a trade name. Insurance won’t cover these costs, so it's important to protect yourself with an effective anti-theft system that will deter would-be hackers from targeting you.

Betterment costs - Even after a security breach, businesses are still required to upgrade their technology systems. The insurance will only go as far as helping you recover what was lost from your current systems, and will not provide assistance in improving them in the future.


Any questions? Please don’t hesitate to contact one of our team.  |  Office: 01245 449060

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