The cybersecurity insurance market was worth an estimated $16.66 billion in early 2023, according to Fortune Business Insights. By 2030, this market is expected to reach a value of $84.62 billion after experiencing a CAGR of 26.1%. Demand is rising, but what’s the reason behind this growth? Are regulatory bodies setting cybersecurity insurance requirements, or are businesses acting independently to protect their interests?
In this blog, we help providers navigate this rapidly evolving market by exploring cyber insurance requirements in 2023. We also take a look at what tools cybersecurity insurance companies can use to mitigate risk for themselves and their clients.
Is Cybersecurity Insurance Required?
Legally, businesses are not required to have cybersecurity insurance. However, the severe financial impacts of cyberattacks often make insurance a must-have rather than a nice-to-have. So, do companies have to have cyber insurance? They should—if they rely on software or any form of digital data to operate.
Forbes reports that in 2022, 76% of businesses were targeted by ransomware attacks across all industries. Organizations also need to be aware that these attacks don’t just threaten their data, but also the data of their customers. For example, if a software as a service (SaaS) company gets hacked, their customers’ financial data could get leaked alongside the business’s proprietary designs. In this example, the SaaS company can be held liable for the leaked customer data, resulting in extensive legal fees.
For this reason, cyber insurance requirements for vendors should include both first-party and third-party coverage. Here’s why:
First-party coverage protects an organization against the primary costs of dealing with a breach. This can include expenses like paying for data recovery.
Third-party coverage protects an organization against the secondary expenses of a cyberattack, such as costs incurred from a client lawsuit due to a data breach.
As a provider, it’s essential to educate your clients on how different policies will cover their needs. If there’s a gap in coverage when a cyberattack does occur, that client will suffer significant financial challenges, and they’ll be unlikely to renew their policy. With Trava, you can more easily assess your clients’ cybersecurity risks, which includes identifying first- and third-party damages.
Why Do Contractors Need Cyber Insurance?
Technically, contractors don’t need cyber insurance, but they should have coverage to help secure contracts and protect their own finances. This is because contractors aren’t just responsible for their own data; they’re responsible for their clients’ data, too.
Contractors rely on their reputation to secure new and repeat business. Cyberattacks can significantly damage a vendor’s brand image. According to Forbes, security is a major aspect of “brand trust.” When that trust is broken, it can have negative financial consequences that last long after a contractor has recovered their data.
Harvard Business Review reports that the average cost of a data breach in the US in 2022 was $9.4 million (including ransom payments, lost revenue during downtime, audit and legal fees, and remediation). Cyber insurance can help cover costs from:
Data breaches caused by phishing, social engineering, and other infiltration techniques
On- and off-premises server corruption
Cyberattacks from domestic and international sources
Legal fees from client lawsuits
Contractors should have cyber insurance because their relationship with their customers makes them a prime target for an attack. They have their own data as well as a significant amount of customer data to guard. To make matters more precarious, these types of clients need to recover data quickly to protect their reputation, which may result in having to pay higher ransoms (which doesn’t even guarantee the return of data access). Trava includes security insights tools, so you can offer guidance to your clients on how to secure their own data, as well as that of their loyal customers.
What Are the Requirements for Cybersecurity Insurance?
While all contractors should have cybersecurity insurance, they can only get coverage if they meet your requirements for system vulnerabilities, risk severity, and risk management practices. Here’s what to look out for in each:
System Vulnerabilities: What are the weak points in your clients’ security system? Do they use outdated firewalls, are their employees trained on best practices, and do they use apps with built-in security features? To get a baseline assessment, use Trava’s Cyber-Risk Checkup.
Risk Severity: What would be the financial damages in the event of a data breach? This impacts how much coverage a policy holder should have, as well as how high their premiums will be to offset potential claims.
Current Risk Management Practices: What is your client doing to reduce vulnerabilities and risk severity? Are they increasing training, updating their security systems, and developing and testing a disaster recovery process? By advising clients to take proactive measures against cybersecurity threats, you can decrease the amount of claims they’ll file while also helping to protect their livelihood.
Cybersecurity threats are on the rise, and businesses need to demonstrate that they are reducing potential damages as much as possible. Otherwise, their vulnerabilities could pose too much of a financial risk to qualify for coverage. To help potential clients understand which actions they need to take to qualify for cyber insurance, use Trava’s advanced, yet easy-to-use, risk assessment tools.
What Are Cybersecurity Requirements for Insurance Companies?
As a cyber insurance provider, you need to be a registered carrier and follow any other legal requirements in your state. You also need to minimize your risk as you provide coverage for clients, which requires thorough, efficient, and accurate risk assessment. Unfortunately, current practices often involve sending a lengthy PDF form back and forth between clients and providers. Doing so can lead to inefficiencies and unnoticed risks and needs.
With Trava, poor risk assessment is a risk you no longer need to take. Bypass cumbersome PDFs, and communicate quickly and clearly with our actionable insights tools. Learn how by scheduling a demo today!