In today's volatile business environment, having the right insurance coverage is essential for protecting against potential financial losses from various disruptions. Among the critical types of insurance for small and medium-sized businesses (SMBs) are business interruption insurance, property insurance, and cyber insurance.
Why Do You Need Business Insurance?
According to recent cybersecurity research, 69% of businesses are concerned about their cybersecurity and risk management solutions. In exploring the following cyber attack statistics, it's easy to understand why.
- 33 billion business records will be stolen by cyber attackers by 2023.
- The past year saw 42% of small businesses become victims of cyberattacks.
- More than 60% of small businesses close their doors within six months of a data breach or cyber attack.
While cyber insurance is custom-built for today's digital business footprints, it can be overwhelming to try to understand, evaluate, and prepare to apply for cyber insurance coverage on your own. Plus, when you start to evaluate business insurance coverage, you may uncover other gaps in protection for your organization. The best approach takes a holistic look at all types of business insurance to understand where cyber insurance fits into your umbrella coverage and then work with a professional to build the correct suite of insurance solutions to protect your organization.
Understanding Types of Business Insurance
While Exigent does not sell insurance or profess to be an expert, we've worked with several over the years and have picked up some tips about business insurance essentials that can provide financial protection for small businesses. Let's start with basic definitions of types of insurance to protect your small to mid-sized business:
Business Interruption Insurance: Designed to cover the loss of income that a business might experience during a disruption, this type of insurance is crucial as it helps businesses manage the financial strain when operations are halted due to events like natural disasters, fires, or other significant disruptions. Coverage typically includes loss of revenue, operating expenses, and temporary relocation costs. For SMBs, which may have limited financial reserves, business interruption insurance can provide a vital financial cushion, ensuring continuity and stability even during challenging times. For instance, if a fire damages your office, this insurance can cover lost income and ongoing expenses while your business is temporarily relocated.
Property Insurance for Business: Most business owners are familiar with property insurance that protects the physical assets of a business, including buildings, equipment, inventory, and furnishings. This insurance covers risks such as theft, vandalism, and damage from natural disasters. For SMBs, property insurance is crucial as it ensures that valuable assets are protected against unforeseen events. For example, if a storm damages your business's equipment or inventory, property insurance would cover the repair or replacement costs, minimizing financial impact and helping you quickly resume operations.
Cyber Insurance: Most MSPs regularly assist customers with preparing for this type of insurance, which is designed to protect businesses from financial losses resulting from cyber incidents such as data breaches, ransomware attacks, and other digital threats. This insurance typically covers costs related to data breach notifications, legal fees, forensic investigations, and business interruption caused by cyberattacks. As cyber threats become more sophisticated, having cyber insurance is increasingly important for SMBs that rely on digital assets. For example, if a ransomware attack cripples your operations, cyber insurance can help cover the costs of dealing with the attack and recovering your data, as well as any legal expenses incurred.
Choosing the Right Cyber Insurance for Your SMB
To select the right insurance coverage, organizations should first assess their specific needs based on industry, size, and risk profile. Consulting with insurance brokers or agents can provide tailored advice and help identify the most appropriate policies for your business. It's also important to regularly review and update insurance policies to ensure they remain aligned with your business's evolving needs and risks.
Common misconceptions about insurance include the belief that it is prohibitively expensive or that one policy can cover all types of risks. Additionally, some businesses may underestimate their coverage needs or fail to understand policy exclusions. To avoid these pitfalls, it's crucial to carefully evaluate and understand your insurance options, work with knowledgeable professionals, and ensure comprehensive coverage that addresses all relevant risks.
Understanding What Cyber Insurance Covers
A typical cyber insurance policy comprises three segments: first-party coverage, third-party liability, and crime insurance. While the specific coverage needs may vary depending on your business's digital footprint and cyber risks, these segments work similarly to automobile insurance in that they cover both damage to your assets and damage you may cause to others.
- First-party coverage addresses the costs incurred directly by your business due to a cybersecurity incident. It includes expenses related to managing data loss, business interruption, extortion fees from ransomware, financial losses from digital theft or hacking, and both deliberate and unintentional denial of service attacks.
- Third-party liability coverage applies to the financial liabilities, penalties, fees, and other costs stemming from damage to other companies or individuals as a result of a cyber incident.
- Crime coverage can be included to specifically address concerns related to invoice manipulation, social engineering fraud, computer fraud, and theft of computer services. Insurance providers anticipate that these types of criminal activities will continue to grow significantly.
The primary goal of cyber insurance coverage is to reimburse financial losses caused by a cyberattack. For instance, first-party coverage may cover damages from fraud and theft, forensic investigation fees during and after an attack, financial losses due to business interruption, extortion costs, and the replacement of damaged hardware and software. It typically also covers credit monitoring and crisis communication expenses as part of a data breach response plan. On the other hand, third-party coverage focuses on legal costs, PCI fines, penalties, and regulatory inquiry costs.
Using a Cyber Insurance Coverage Checklist to Prepare
As you research and evaluate cyber insurance providers, it's crucial to prepare your environment for review before applying for coverage. A coverage checklist helps answer a crucial question for businesses: "How insurable am I?" While this evaluation can be revealing, it may also highlight areas where your organization falls short of the coverage requirements. In such cases, the next steps involve considering necessary improvements to meet the cybersecurity standards set by insurers. Using a coverage checklist can provide a sobering assessment of your cybersecurity stance, especially if your organization has hesitated to invest in technology and cybersecurity.
Download our sample cyber insurance checklist now
Final Thoughts on Business Insurance
Given the diversity of businesses, it's essential to educate yourself about reputable insurance providers and thoroughly understand the coverage parameters that align with your specific business needs before making final choices about protecting your SMB with insurance. Evaluating your SMB insurance coverage needs and seeking professional advice can help ensure that your business is well-protected. Investing in the right insurance is a proactive step toward securing your business's future and ensuring resilience in the face of potential challenges. At Exigent, we don't handle insurance of any type; however, during our three decades of partnership with our clients, we've built good working relationships with several exceptional providers and can happily make introductions.
Let's talk about how your organization can protect itself with managed IT services, cybersecurity, and the right business insurance coverage.
