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Cybersecurity Insurance: The Insurance Provider's Guide

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Try to think of a business that can operate to its fullest potential without the internet or digitally-stored data. You probably can’t. In many ways, the internet helps businesses succeed by making it easier to connect with customers and store and share data with employees. Cyberattackers have also discovered how valuable data is, however. In fact, Security Magazine reports that cyberattacks rose in frequency by 38% from 2021 to 2022.

Unfortunately, beefing up cybersecurity isn’t enough to fully protect businesses from attacks. That’s why cyber insurance is a vital piece of a comprehensive risk mitigation strategy. But as cyberattack strategies advance and security methods innovate to keep up, providing cybersecurity insurance can become filled with uncertainty. And in the insurance world, uncertainty is a four-letter word.

In this ultimate guide, we’ll provide clarity by answering essential questions like:

Let’s dive in!

What Is Cyber Insurance and How Does It Work?

Businesses purchase cybersecurity insurance to protect themselves from the damages caused by cyberattacks. Similar to how liability, car, and health insurance work, cyber insurance allows organizations to lower their risk when operating online. Where liability insurance may cover the medical costs of someone who slips and falls on a business’s property, cyber insurance can protect that same business from financial losses caused by data breaches or cyberattacks that:

As a cyber insurance provider, your role is to match qualifying businesses with policies that offer comprehensive protection for their circumstances.

What Is Cybersecurity Insurance For?

Like other forms of insurance, cyber insurance providers don’t offer a one-size-fits-all solution. Instead, businesses can qualify for different levels of coverage at varying rates that depend on factors like:

Trava streamlines the risk assessment process, so providers can feel confident when providing coverage for their clients. Book a demo to learn more.

What Are the Unique Challenges of Providing Cybersecurity Insurance?

One unique challenge with cyber insurance is that it can be much more difficult for businesses to qualify for coverage. That’s because cybersecurity threats are constantly evolving, and so are the ways that businesses are using the internet to operate. For example, consider these trends:

To keep up with rapidly advancing threats and to protect their own interests, cyber insurance providers need air-tight risk assessment when writing policies. Yet, most providers struggle to capitalize on the growing cybersecurity insurance market for three reasons:

  1. Cybersecurity is constantly changing. As cybersecurity technology advances, so do the techniques that attackers use to hold data hostage. In fact, the World Economic Forum cites AI-powered cybersecurity threats as a growing concern through 2030.

  2. Current risk assessment processes are cumbersome for both providers and clients. Oftentimes, providers and clients need to pass lengthy PDFs back and forth during risk assessment. This outdated process causes frustration for both parties, and it leaves more opportunities for costly errors. Fortunately, there’s a better way. Trava makes it easy to process quotes quickly and accurately. Get in touch with our experts to learn more about our comprehensive cyber risk management program.

  3. Many risk assessment methods are inaccurate or don’t provide the whole picture. Insurance is all about risk management. Without accurate data, your agency could take on clients that are a much greater liability than anticipated. Trava enables agencies to confidently assess clients’ risk levels. With accurate data, you can create policies that are the best-fit for each of your clients, and even attract new business by offering more competitive rates for low-risk organizations. Book a demo to see first-hand the benefits that an enhanced risk assessment process can provide.

The cybersecurity insurance market is relatively new and growing quickly. With the right tools, your agency can take advantage of increasing demand without taking on unnecessary risk. A great place to start is with Trava’s cyber risk check-up, which can give you a detailed report of an organization’s vulnerabilities and risks.

What Does Cyber Insurance Cover?

Cybersecurity insurance can cover legal and recovery costs caused by:

More specifically, potential clients may be wondering, “Does cyber insurance cover phishing?” In many cases, yes. Data breaches caused by phishing, social engineering, and other infiltration techniques are covered under multiple types of cyber insurance. When providing cybersecurity insurance, you have two primary categories of coverage you can offer:

As with any type of insurance, cybersecurity insurance coverage varies from policy to policy. When working with clients, be sure to set clear expectations for which types of cyber insurance claims they will be able to file. With Trava, you can help your clients discover exactly which risks they need to prioritize, so you can write a policy tailored to their exact circumstances. Our platform reveals insights that allow your team to provide the best service possible, even as cyberthreats evolve and client needs change. Reach out to learn more.

What Does Cyber Insurance Not Cover?

While cybersecurity is often a good investment for businesses, providers should make it clear that this type of insurance does not typically cover the following:

Educating your clients is critical to establishing a positive working relationship. If a business expects a certain level of coverage that isn’t actually included in their policy, then they’ll face unexpected financial challenges and will be less likely to renew their policy. Here’s what your clients need to know about what cyber insurance does not cover, in detail.

Physical Property Damage

Cybersecurity does not cover damage to physical property, even if it’s caused by a cyberattack. For example, a hacker could gain control of software-run robotic arms in a manufacturing plant. As a result, those robotic arms could damage the assembly line, requiring costly repairs and halting production.

Instead of relying entirely on cyber insurance to protect from all the consequences of a cyberattack, you can encourage clients to supplement their policy with equipment or property insurance to cover physical damages.

Lost Profits

Cybersecurity does not cover the loss in profits that can occur after a data breach. This is a crucial point to clarify. Statista reports that 37% of businesses who were targeted by a cyberattack in 2022 faced financial damages of at least $100,000, and 4% of those affected lost over $1 million. Data is absolutely necessary for businesses to operate at full capacity. Without customer information, process maps, inventory records, and other datasets, companies can struggle to provide their products and services. Ransomware attacks, which lock businesses out from their data until they pay a hefty ransom to their attacker, are just one example of how cyberattacks can cause significant profit losses.

Your clients can invest in business interruption insurance alongside cyber insurance to ensure they’re covered for data breaches and the resulting loss in profits.

Decrease in Company Value

Cybersecurity insurance does not cover a decrease in company value, even if that decrease is tied to a cyberattack. For example, when a cyberattack disrupts service, that business’s clients may become frustrated and churn. The immediate result is a loss in revenue. The long term effect is a lower company value, which can make it harder to attract investors or find a buyer for the business.

There isn’t a specific type of business insurance that covers a decrease in company value. However, you can help your clients protect against the factors that contribute to such a decrease. For example, business interruption insurance can mitigate the loss in revenue that would negatively impact value. Similarly, equipment and property insurance can lessen the impact of faulty machinery or a hazardous place of business after a cyberattack. When coupled with a cybersecurity insurance policy, these other types of insurance can provide holistic coverage for your clients.

Security System Upgrades

Cybersecurity insurance does not cover the costs for a business to upgrade their security system after a cybersecurity attack. However, this is still an investment that’s worth recommending to your clients. Upgrading their security systems can reduce your clients’ vulnerabilities and risks related to cyberattacks, which can reduce their policy premium costs. This will encourage them to stick with your agency through renewal periods. Also, when your clients have enhanced security systems in place, they’ll likely experience fewer data breaches. That means they’ll file fewer claims, which saves your agency costs.

Who Needs Cyber Insurance?

Businesses of all sizes that use the internet to function (Let’s be honest, who doesn’t?) need cyber insurance to protect themselves from ever-increasing cyberattacks. For insurance companies, the growing challenge of how businesses can deal with cyberattacks presents a unique opportunity to provide a solution. Like any problem, half the battle is knowing who to help.

Small Businesses Are 3X More Likely To Be Targeted by Cyberattacks

According to Forbes, cyberattacks are three times more likely to attack small companies than larger businesses. This report defines small businesses as having fewer than 100 employees. Specifically, social engineering attacks typically target small businesses. These businesses appeal to hackers because they typically have fewer resources to invest in cybersecurity than their larger counterparts. Small businesses may also incorrectly assume that they won’t be a target, until a cyberattack happens. When selling cyber insurance to this audience, it’s important to first educate prospects on the dangers of cyberattacks so they understand the value of insurance.

Larger businesses aren’t off the hook, however. According to McKinsey & Company, mid-sized companies experienced an almost 50% increase in cyberthreats from 2021 to 2022. While larger companies typically have more advanced security than small businesses, they also generate and store more data. Hackers have more to gain by targeting a large business, so many cyberattackers will still make the effort to compromise their data.

Ultimately, data breaches are a matter of if, not when, and no prevention system is 100% successful. That’s why insurance providers should present cyber insurance as part of a holistic risk mitigation strategy, in addition to network security measures.

Manufacturers Are the Most Likely To Be Targeted By Cyberattacks

Not all industries are at equal risk for cyberattacks. According to Statista, the following industries experienced the highest percentage of cyberattacks in 2022:

  1. Manufacturing: 24.8%

  2. Finance and Insurance: 18.9%

  3. Professional, Business, and Consumer Services: 14.6%

  4. Energy: 10.7%

  5. Retail and Wholesale: 8.7%

  6. Education: 7.3%

  7. Healthcare: 5.8%

  8. Government: 4.8%

  9. Transportation: 3.9%

  10. Media and Telecom: 0.5%

A variety of factors contribute to the risk that each industry faces. Cybersecurity investment, possession of sensitive information like patient data or trade secrets, and company value all influence how likely a hacker is to target a business. As an insurance provider, taking the time to understand your clients’ unique position will go a long way towards creating the best policy for them and building a lasting relationship.

What Percent of Small Businesses Have Cyber Insurance?

BizTech reports that only about 25% of small and mid-sized businesses have cyber insurance, despite the significant risk that cyberattacks pose to these companies. This represents a significant untapped market for insurance companies. Yet, as an insurance provider, it’s important to understand why these businesses aren’t investing in cyber insurance. Here are some of the top reasons:

So how do you educate your prospects on how critical cyber insurance is to the long-term success of their business? We’ll cover that in the next section.

Is Cybersecurity Insurance Worth It?

Cybersecurity insurance is worth it for providers to offer because businesses of all sizes have an increasing need for it. As we mentioned at the beginning of this article, cyberattacks became 38% more common between 2021 and 2022 (Security Magazine). In response, the cyber insurance market in 2023 is rapidly growing. In fact, Forbes reports that this industry is forecasted to expand from $10 billion in premiums in 2022 to $23 billion in premiums by 2025.

Of course, whether or not it’s worth it to insure a specific client comes down to their individual risk level. Sometimes, you can work with a client by offsetting their higher risk with higher premiums. Other times, potential clients will have to strengthen their cybersecurity system before they can qualify for coverage.

With Trava, you can efficiently gauge a business’s cybersecurity risk level. Our platform streamlines assessment, underwriting, readiness reports, and more to ensure that you create policies that work for your clients and your agency.

What Are the Requirements for Cybersecurity Insurance?

Cyber insurance law varies by state, but in most cases, there aren’t additional requirements beyond what it takes to sell other types of insurance. In other words, your agency needs to be registered as a carrier in your state, and you need to be able to prove that you’ll be able to cover any claims that your clients might file. Check with your state regulations to see if there are additional cybersecurity insurance requirements for vendors.

Cyber Insurance Coverage Checklist During Risk Assessment

Cybersecurity insurance agencies don’t just need to meet legal requirements, they also need to ensure that potential clients won’t carry too much or an unexpected amount of risk. Use this checklist to get a baseline of what potential clients are currently doing to mitigate vulnerabilities:

These questions are just a starting point. It’s also important to gauge potential clients’ risk, or how drastically a cyberattack would impact their finances. Consider:

Set Clear Expectations and Encourage Renewals with Trava

Few things are more frustrating than going to the doctor then discovering your insurance won’t cover the costs of your prescribed medication. When it comes to cybersecurity, unmet expectations can cause greater problems—for both providers and policyholders—because the stakes are higher. When cyberattackers leak your clients’ sensitive information or hold their essential data hostage, they can suffer losses in revenue, equipment and property damage, ruined reputations, legal fees, decreased company values, and so much more. While cybersecurity insurance can help cover the costs of data recovery and legal fees, most policies won’t cover the long-term or secondary consequences of cyberattacks.

Your clients need to be aware of exactly what their policies cover, otherwise they can be vulnerable to significant financial losses that may cause them to take their business elsewhere. With Trava, you can easily assess each client’s risk, so you can create tailor-made policies. You can also streamline the assessment process, which gives more time and focus for you and your clients to discuss exactly what their coverage includes.

See the difference simple can make. Book a demo today.