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Cyber Insurance Premiums

Trava Security

Would it surprise you to learn that in 2022 there were 38% more cyberattacks than there were in 2021? What’s worse, experts predict the trend to continue, with cyberattacks not only becoming more frequent but more sophisticated—and costly—as well. And while attackers are targeting companies across a number of industries and regions, the United States saw the largest single-nation increase (57%) in attacks.

A majority of modern companies understand the serious threat posed by cyberattacks. Many are even aware that it’s more a matter of when they might be targeted as opposed to if they will be attacked.

And yet research shows that 1 in 10 U.S.-based companies have no cyber insurance to protect their data, systems, and other assets. As alarming as that is, there are reasons why businesses—especially small businesses—are currently unprotected against attacks, and understanding these reasons can help providers better justify the value of coverage.

Small businesses might not think they’re likely to be targeted, for example. Or, they might not think there’s room for it in their budget. This might say just as much about their understanding of cyber insurance’s purpose and advantages as it does about their budget itself, though. Finally, some companies realize the importance of coverage from a high level but simply feel overwhelmed by the prospect of understanding how it all works.

In this article, we’re going to look at cybersecurity insurance in a way that can help providers to convey the value of coverage. We’ll be especially focused on small and mid-sized companies, where the “sticker shock” of cyber insurance premiums can—but really shouldn’t—deter them from obtaining the coverage they need to protect their systems and assets, as well as their customers’ data. First, though, let’s define exactly what we mean by the terms “cybersecurity” and “cyber insurance”.

What Is the Difference Between Cybersecurity and Cyber Insurance?

While they’re often discussed in tandem and are closely related to each other, “cybersecurity” and “cyber insurance” aren’t exactly the same thing. Here are a couple of quick definitions that can help focus clients as you explore their cyber insurance needs with them:

What Are Examples of Cybersecurity Threats?

Because cybercriminals are constantly devising new, more sophisticated methods of attack, cybersecurity is an ever-evolving term. That being said, the five biggest cybersecurity threats facing businesses today include a combination of outside attacks and internal vulnerabilities.

Is Cybersecurity Insurance Worth It? A Guide for Small Businesses

When clients wonder whether cybersecurity insurance is “worth it,” they’re rarely unconvinced of the importance of coverage. What they’re really asking, most likely, is for a detailed accounting of the benefits of cybersecurity insurance and for a clear picture of how those benefits justify the cost.

Let’s take a look at how you can work through the conversation when dealing with a client who’s not yet convinced or ready to buy. We’ll organize this content according to a rough 3-step process for helping them understand…

Who Needs Cyber Insurance?

There’s a misconception that cyber insurance is only needed by enterprise-level organizations—in reality, virtually every company stands to benefit from some level of coverage. As noted by the Consumer Financial Protection Bureau (CFPB), this includes any companies that “collect and store purchase information, maintain records of Social Security numbers, or have credentialing or educational data.”

Further underscoring the importance of cybersecurity insurance is the fact that small businesses are increasingly finding themselves the target of attacks.

Ultimately, cybersecurity coverage is important for any company that…

What Costs Does Cyber Insurance Cover?

Generally speaking, cyber insurance policies are meant to cover legal as well as recovery costs associated with certain types of cyberattacks. What, exactly, is covered by a given policy depends on what type of coverage it offers.

What Are the Two Types of Cyber Insurance, and What Do They Cover?

Two of the most common types of cyber insurance are data breach coverage and cyber liability insurance.

What Isn’t Covered by Cyber Insurance?

As clients learn more about their cyber insurance options, making it clear what cyber insurance doesn’t cover is just as important as what it does cover. That way, organizations can be aware of outstanding needs or considerations, and evaluate different options for covering such expenses. Some of the main things not typically covered in a cyber insurance policy include…

The first step toward helping a client better understand the full scope of their cyber insurance needs—including what expenses are (and are not) covered is taking Trava’s free Cyber Risk Assessment.

Once that’s been covered, the next step is to convey the key advantages of cyber security insurance.

What Are the Advantages of Cyber Security Insurance?

The primary advantage of cyber insurance is that it provides vital support to an organization’s ability to bounce back from a cyberattack and keep their customers’ data safe. More specifically, cyber insurance enables companies of all sizes to…

It can sometimes be difficult to help smaller businesses understand the cybersecurity landscape, or to help them see that they, too, need coverage. When working with small businesses, it’s important to dispel common myths about cyber insurance—such as the idea that small businesses aren’t likely to be targets of a data breach or cyberattack.

Why Do Small Businesses Need Cyber Insurance?

Small businesses need cyber insurance for the same reasons as their mid- and enterprise-sized counterparts—to keep their systems, and their customers’ sensitive information, protected against data breaches and cyberattacks.

For too long, small businesses were under the impression that they were in the clear, even as they inevitably heard about major data breaches in the news on a regular basis. As described by FBI Supervisory Special Agent Michael Sohn, cybercriminals have taken notice of the vast discrepancy between the cybersecurity posture of enterprise-level and small businesses. As the larger organizations beefed up their cybersecurity, cybercriminals began to pivot, “evolving and targeting the soft targets, which are the small and medium businesses.”

With that in mind, there are plenty of compelling reasons for small businesses to have cyber insurance coverage, including…

Even once the advantages of cybersecurity insurance have been made clear, clients will likely want to determine whether their budget can cover the premiums. In many cases, helping them understand the reasons behind the cost—and the costs of potential inaction—can be highly persuasive.

Why Is Cyber Insurance So Expensive?

Cyber insurance rates are increasing largely due to the greater frequency, sophistication, and cost of modern cyberattacks. And the rising rates are significant, with cyber insurance premiums increasing by 91% in 2021 and 65% in 2022.

As mentioned earlier, increases in cyber insurance premiums largely relate to the larger cybersecurity landscape, including the “bad actor sophistication, a propensity to pay in ransomware cases, and a broad swath of geopolitical uncertainty,” each of which Harvard Business Review indicates are “conditions that hackers have found favorable.”

Fortunately for companies just looking to procure cyber insurance, premium increases did slow from 2021 to 2022. As CNBC notes, this is largely due to “the increase in security-related losses and rising demand for coverage.”

As cyber insurance providers discuss coverage with potential clients, it’s important to acknowledge that while cyber insurance costs are on the rise, so, too, are the potential costs of inaction. In other words, yes these policies cost more—but the attacks they’re designed to protect against are also wreaking more havoc when their attempts to compromise data and systems succeed.

How Much Does Cyber Insurance Cost on Average?

A company’s annual cyber insurance cost for the coverage is likely to fall within the range of $500 to $5,000 on average, according to Security.org. That’s obviously a pretty considerable range but the general cost can be difficult to pin down due to the sheer number of variables that factor into the equation. These include factors such as the business size, industry, and annual revenue.

How Are Cyber Insurance Premiums Calculated?

Just as no two organizations are identical, there is no established formula for calculating cyber insurance premiums. Ultimately, these costs will depend on a wide array of factors, with a couple of the most prominent being the amount of sensitive data and customer information being handled and the strength and scope of currently implemented cybersecurity measures. Other factors that impact policy costs include the company’s:

How Can Small Businesses Afford the Cost of Cyber Insurance in 2023 and Beyond?

When working with client organizations that classify as small businesses, providers must emphasize the advantages in a way that justifies the cost. For example, the discussion could be re-framed to focus on whether they can afford to forgo this essential coverage, helping them to understand the potential catastrophe that could result from inaction. Helping these clients find the best cyber insurance for their small business means validating and prioritizing their needs, and working to justify the cost as a necessary expense.

Of course, when it comes to cyber security insurance for a small business, cost is always going to be a factor. Fortunately, there are steps a small business can take to reduce costs and make cyber insurance more affordable, such as:

Cyber Insurance—It’s Just Easier with Trava

Ultimately, the more intimately a small business understands its overall cybersecurity posture, the easier it will be for them to understand the essential value of cyber insurance. A great starting point is to complete a cybersecurity risk assessment, which takes a structured look at an organization’s vulnerabilities and opportunities as they relate to network and application security, sensitive customer data, and more.