Cyber Insurance Gains Acceptance among Business
YOUNGSTOWN, Ohio – There are risks to businesses that employers deal with each day: theft, vandalism, accidents, fire. All are tangible issues from which companies must protect themselves as they prepare for the worst.
There is also a growing threat, largely invisible, that lurks in the underworld of cyberspace. Computer hackers and identity thieves are today more sophisticated than ever and have found ingenious ways to penetrate firewalls once thought impregnable at the most secure institutions in the country.
So, if it’s possible for a 15 year-old to hack into a NASA computer, how secure are the data stored in your company’s computers?
“Everybody is more realistic today that it can happen to them,” says Tom Costello, president of James & Sons Insurance Inc. in Boardman. “Cyber liability is a very big item right now.”
Cyber insurance is a fast-growing component of the global insurance industry that is responding to the increasing number of data breaches around the world. In 2014, for example, 54% of the global companies carried cyber liability insurance, while more than half of the companies lacking it considered buying it, a survey conducted by Statista found.
However, just 3.8% of firms with annual revenues of less than $2.5 million carried global insurance, the survey shows.
In the United States, 33% of companies carried cyber insurance in 2014, the majority of which – 88% — are in the financial services industry, the Statista survey shows. Other sectors most likely to carry cyber insurance are health care, public education and government.
“Two years ago, we didn’t write any cyber policies,” Costello says. “We’ve written several since, but more people are starting to inquire about it.”
The costs of repairing the damage after a data breach could be enormous, Costello emphasizes. Under law, if a system is hacked, it’s the responsibility of the business or organization to notify all of the parties that could be affected. That could mean thousands of employees or customers.
Were there a security breach at James & Sons, Costello notes, “we’d have 5,000 clients to notify in an expeditious manner. That’s a huge item.”
Cyber liability insurance covers such costs, Costello notes.
While compliance is a potentially expensive issue, so is repairing a company’s reputation after such an incident. “It was interesting that when Target was hacked, there was a sales promotion to get customers back in the doors. What they didn’t report was that most of those new sales were cash sales,” Costello says, noting that its customers remained reluctant to use credit cards.
According to survey Kroll compiled, the average total cost for a company in 2014 to repair a cyber breach was $5.9 million — including $3.2 million in lost business, on average — or an estimated $201 per compromised record. The most frequently encountered data breaches – about 44% — were caused by malicious or criminal intent, while 31% were attributed to employee negligence. System glitches accounted for 25% of data breaches, the survey shows.
Data loss resulting from a criminal or malicious cyber attack on average cost the most per compromised record at $246, the Kroll survey found. Glitches and employee mistakes resulted in an average cost of $171 and $160 per record respectively.
Those incidents that were the result of the loss or theft of devices such as a tablet, phone or laptop, could increase per record costs by $18 per record, the survey shows.
“The days of just insuring your property, vehicles and liability are gone,” observes Chase Booms, vice president of Chase Agency Inc., Boardman. Cyber insurance, he emphasizes, is quickly becoming an important part of a business’ liability portfolio. “There’s a ton of coverage and business for this,” he says.
The risks of compromising personal data through a company’s system are much greater today as technology permeates more of the business world by way of mobile devices, tablets and laptops.
“There’s coverage for anything like that,” Booms says. “This is a huge trend in commercial insurance, and we’re endorsing and educating clients about cyber liability insurance.”
Copyright 2023 The Business Journal, Youngstown, Ohio.