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Cybersecurity Insurance Requirements

Trava Security

The digital era is full of opportunity, but it has also brought forth an array of risks that demand a dramatic shift in insurance practices. Traditional forms of coverage are no longer enough to protect businesses from the complex and persistent threats in our interconnected world. Against this backdrop, cybersecurity insurance emerges as a beacon of resilience, offering comprehensive protection against the rapidly evolving dangers that organizations face.

A recent U.S. Government Accountability Office report notes the demand for this kind of insurance. The percentage of clients opting for cybersecurity insurance has risen significantly, soaring from 26% in 2016 to an impressive 47% in 2020. However, as a result of this surge in demand, providing cybersecurity insurance has become a significantly more complex process.

Cyber insurance premium trends are intricately tied to the frequency, severity, and financial impact of cyberattacks, all of which have been on the rise. This dynamic nature of cyber threats adds an additional layer of uncertainty for insurance providers. As a result, insurers have become more selective in their underwriting processes, carefully evaluating the risks associated with different organizations and industries.

By understanding evolving requirements and challenges, insurance providers can better meet client needs while mitigating their own risks. Without this due diligence, providers may face increased frequency in cyber insurance claims, profitability challenges, and even reputational damage.

To assist, our team at Trava Security has prepared this guide to cyber insurance requirements for vendors. We’ll cover topics like the importance of cybersecurity, what providers are and aren't covering, and the best way to navigate this constantly changing industry.

Why Is Cyber Insurance Important?

Cyber insurance is important because it provides risk mitigation and financial protection to organizations facing the growing threat of cyber incidents. The magnitude of this “growing threat” cannot be understated, as highlighted by IBM in their latest Data Breach Report:

For insurance providers, understanding the importance of cyber insurance is paramount, especially for those already selling cybersecurity or considering entering this line of work. It is now a primary offering for providers for many reasons, including:

Are Companies Required to Have Cyber Insurance?

Although cyber insurance is not typically mandated by law for all companies, the importance and demand for cyber insurance coverage have still been steadily increasing. Many industries, especially those dealing with sensitive customer data like healthcare and financial services, have regulations to implement reasonable security measures. While specific security measures are not prescribed, cybersecurity insurance can be vital in mitigating the financial risks associated with potential data breaches or cyber incidents.

For example, the Health Insurance Portability and Accountability Act (HIPAA) does not explicitly mandate cybersecurity insurance. However, it does require that healthcare organizations and their business associates implement “reasonable and appropriate security measures to protect the information.” Having cybersecurity insurance coverage tailored to the unique needs of the healthcare industry can help organizations comply with HIPAA requirements and provide financial protection in the event of unintentional noncompliance.

What Does Cyber Insurance Cover?

Cyber insurance coverage is designed to provide financial protection and risk mitigation for organizations and individuals in the face of cyber incidents and data breaches. For insurance providers looking to offer cybersecurity packages, it’s crucial to understand the scope of coverage typically offered in these policies. Here are the key areas that cyber insurance can cover:

What Will Most Cyber Insurance Policies Not Cover?

There are a few issues that cyber insurance policies typically don’t cover, like future profit loss and intellectual property disputes. Understanding the scope of coverage is essential when providing cybersecurity packages to clients. By clarifying what isn't covered by cyber insurance, insurers can effectively manage client expectations. Here are important insights to keep in mind regarding what cyber insurance does not cover:

By understanding these limitations, providers can guide clients and support their decision-making around cybersecurity needs.

The consequences of coverage confusion…

A recent survey conducted by FM Global, a commercial property insurer, revealed that 71% of chief financial officers (CFOs) from companies with over $1 billion in revenue expressed confidence in their insurer's ability to provide substantial coverage for the losses incurred in the event of a cyberattack. However, with so many variations in cybersecurity insurance policies, this “substantial coverage” may not extend as far as one might think, leading to messy legal issues for policyholders and providers.

Consider P.F. Chang's v. Federal Insurance Co., a notable legal case where P.F. Chang's, a restaurant chain, sought coverage from its insurance company for losses incurred from a data breach. Federal agreed to pay for part of the claim—around $1.7 million for a forensic investigation and litigation defense.

Unfortunately, Federal denied another part of P.F. Chang's claim because they characterized it as a “contract claim.” P.F. Chang's couldn't work directly with banks because of certain rules and restrictions, and instead had to rely on a middleman who had contracts with the banks. When the data breach occurred, the bank charged the middleman around $1.9 million in penalties and fees due to the breach. The middleman then made P.F. Chang's pay that amount according to their contract.

P.F. Chang's sought coverage for the $1.9 million its servicing bank charged, which Federal denied. The insurance policy between P.F. Chang's and Federal did not explicitly mention coverage for these specific assessments. When P.F. Chang's brought this issue before a court of law, the court dismissed their complaint because their insurance policy didn't cover obligations they agreed to with a third party.

This case highlights the importance of providers fulfilling all the requirements of their clients during policy creation to avoid such messy issues. It is critical for insurers to carefully review their cybersecurity policies and ensure that they understand the extent of coverage provided. Clear communication and transparency between the insured party and the provider are essential in avoiding gaps in coverage like this.

Cyber Insurance Coverage Checklist for Providers

Cyber insurance requirements for 2023 and beyond will likely evolve as our society's digital defense needs change. While specific requirements can vary among insurance providers, some common cybersecurity insurance requirements include:

By fulfilling these criteria, insurance providers can demonstrate that their cyber insurance coverage effectively addresses evolving cyber threats and provides comprehensive protection.

Navigate Cyber Insurance Requirements for Vendors With Trava

Traversing the constantly changing landscape of cybersecurity insurance can be daunting for insurance providers. Meeting the growing needs and requirements of clients requires a strategic approach to stay ahead of the curve. That’s where Trava comes in.

Trava is your trusted guide in the complex world of cyber insurance requirements. We offer innovative solutions that give insurance providers a competitive edge, simplifying the process of meeting client needs while minimizing risks. Our comprehensive cyber risk management program and services go beyond the basics. We provide streamlined risk assessments, offering actionable insights and a holistic view of your clients' cybersecurity infrastructure.

Don't miss the opportunity to harness the power of Trava. Schedule a demo and discover how our solutions can ensure that your clients receive the robust and tailored coverage they need in today's digital world. Let us empower your business to navigate the complexities of cyber insurance with confidence.