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.
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:
83% of the organizations studied had at least one data breach in the past year.
$4.35 million is the average cost of a data breach, up from $3.62 million in 2017.
277 days is the average time it takes to identify and contain a data breach.
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:
Expanding market demand - What is the cyber insurance market forecast, exactly? According to Fortune Business Insights, the global cyber insurance market size is anticipated to grow at a CAGR of 26.1% from 2023 to 2030. The adoption of e-commerce platforms, cloud solutions, smart devices, and more are some of the big factors driving this development. Insurance providers can leverage this growth by offering specialized cyber insurance policies to meet the increasing demand for comprehensive cybersecurity coverage.
Keeping up with compliance and regulation - As cyber attacks increase, various industries implement new or additional cybersecurity requirements. Sectors like healthcare and finance have regulations mandating cybersecurity measures, including insurance coverage. Government contracts and agreements may also require cybersecurity insurance as a condition of doing business. When providers align their policies with industry standards, they enable organizations to meet legal obligations and demonstrate commitment to data protection.
Gaining a competitive advantage - By embracing cyber insurance, providers differentiate themselves from competitors and establish their businesses as trusted allies. Tailoring comprehensive coverage to the specific requirements of diverse industries positions insurers as a valuable asset for organizations seeking strong cybersecurity solutions. This advantage over competitors fosters customer loyalty, opens doors to new prospects, and fuels sustained growth in the long run.
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.
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:
Data breach response costs coverage includes anything related to investigating and responding to a data breach, such as forensic investigations, legal fees, notifying affected individuals, credit monitoring services, and public relations efforts.
Data breach liability coverage protects against legal expenses and potential financial losses that may arise from lawsuits filed by individuals or entities impacted by a data breach. This coverage includes claims related to privacy violations and negligence.
Extortion and ransomware coverage assists with expenses related to ransom payments, negotiations with cyber criminals, and professional assistance in managing ransomware attacks or other forms of cyber extortion.
Business interruption coverage helps businesses recover financially from cyber incidents that disrupt their operations. It compensates for costs and losses incurred during the interruption, such as lost revenue, increased operating expenses, and the necessary expenses to restore systems and recover data.
Privacy and network liability coverage protects against claims arising from inadequate protection of customer data, accidental disclosure of sensitive information, or violations of privacy laws and regulations.
Regulatory and legal compliance coverage provides financial protection for expenses related to regulatory fines, penalties, or investigations that arise due to non-compliance with data protection and privacy regulations.
Cybercrime loss coverage addresses financial losses resulting from fraudulent electronic transfers, social engineering scams, phishing attacks, and other cybercrime activities.
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:
Future profit loss - If a cyber incident leads to a decline in customers and subsequent loss of profit, the insurance policy will not reimburse those financial losses. Additionally, most cyber liability insurance policies do not offer coverage for a decrease in company value. For instance, if a digital criminal steals valuable intellectual property, the overall worth of a business may diminish. However, insurance providers typically do not compensate for the loss of company value in such cases.
Intentional acts - Coverage may not apply to losses resulting from deliberate acts by the insured party, such as participating in illegal activities or intentionally causing a data breach.
Intellectual property disputes - Cyber insurance typically does not cover legal disputes related to intellectual property rights, such as patent or copyright infringement claims. For example, if a competitor accuses a business of using their patented technology without permission, cyber insurance would not typically provide financial support for the legal defense or any resulting settlement or judgment.
Prior known breaches - If a company is already aware of a data breach or cyber incident before obtaining cyber insurance, coverage may not apply to losses or damages resulting from that known breach.
Regulatory fines and penalties - While cyber insurance can assist with costs related to regulatory investigations and compliance, most policies do not cover fines or penalties imposed by regulatory authorities for non-compliance with data protection laws.
By understanding these limitations, providers can guide clients and support their decision-making around cybersecurity needs.
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 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:
Risk assessment - What is risk assessment in cybersecurity? Risk assessment is identifying, analyzing, and evaluating potential vulnerabilities and threats to determine the level of risk associated with an organization's digital assets and systems. By emphasizing risk assessment, insurers can enhance their underwriting processes, provide valuable risk management guidance, and maintain a profitable and sustainable cyber insurance portfolio. With Trava's comprehensive cyber risk management program and services, this requirement becomes much easier. Trava offers a 365-day view into your clients’ cybersecurity infrastructure, from streamlined risk assessments to actionable insights.
Policy customization - By offering customizable policies, insurance providers can accommodate varying risk profiles and provide coverage limits, deductibles, and specific coverage options that address the unique cyber risks faced by each policyholder. This flexibility ensures that organizations receive the appropriate level of protection based on their specific risk profile, enhancing the value and relevance of the insurance coverage provided.
Minimum coverage limits - These cyber insurance coverage limits set a baseline for the coverage a policyholder must carry to adequately protect themselves and their clients. For instance, they might require a minimum coverage limit of $1 million, guaranteeing that the insurer possesses the necessary financial safeguard should the unthinkable occur. This requirement offers peace of mind to both the client and the vendor that they are prepared to face the potential financial ramifications of a cyber threat.
Earlier retroactive dates - A standard cyber policy typically excludes coverage for breaches that occurred before the policy's specified inception date, even if the policyholder makes the claim during the policy period. This provision means that organizations may not be protected from breaches that happened before the policy period, which can be problematic considering that breaches often go undetected for extended periods. To combat this, insurance providers should offer earlier retroactive dates or eliminate them altogether.
Subcontractors and third-party provisions - Consider a scenario where a healthcare organization hires an IT consulting firm to manage its systems and databases. The consulting firm, in turn, subcontracts certain tasks to another IT service provider. If a data breach happens due to a security vulnerability introduced by the subcontractor, it could potentially compromise the healthcare organization's sensitive patient information. In this case, if the subcontractor is not covered by cyber insurance or does not have adequate coverage, it could expose the healthcare organization to financial losses and legal liabilities. For this reason, clients often require vendors to ensure that their cyber insurance policies explicitly cover subcontractors and third-party vendors involved in their operations.
Breach response services - Provide access to breach response services, such as forensic investigations, legal assistance, notification services, credit monitoring, and public relations support. These services help policyholders effectively respond to and mitigate the impact of a cyber incident. With Trava, providers have a comprehensive suite of software tools and services designed to help organizations secure their IT infrastructure and respond to any breaches that may occur.
Education and training - Provide resources and training programs to educate policyholders about cyber risks, prevention strategies, and best practices for maintaining a strong cybersecurity posture.
Incident response planning - Encourage policyholders to develop and implement incident response plans. This proactive action helps them effectively handle and respond to cyber incidents, minimizing the impact on their operations and reputations. Providers can also motivate clients to improve their planning by offering lower premiums, similar to how auto insurance providers offer safe driver discounts.
By fulfilling these criteria, insurance providers can demonstrate that their cyber insurance coverage effectively addresses evolving cyber threats and provides comprehensive protection.
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.