Digitalization has taken over the world of business. With the shift from hardcopies to soft copies, has risen the number of incidents of Internet-based crimes – data breaches and phishing. It is a common misconception that cybersecurity is only a problem for big corporations. Large companies might possess more data, but small companies, too, face risks arising out of cyber crimes. For instance, large organizations are not the only ones susceptible to a virus attack or being hacked. Survey shows that 43% of small businesses have endured a data breach, out of which at least 50% have experienced it multiple times.
Some breaches could go undetected for an extended period of time, resulting in a hefty loss of revenue, or the company getting fined. A data breach could also damage the company’s reputation while also putting the clients and customers at risk. This is why cyber insurance is of utmost importance for small, mid-sized and large organizations and does not depend on the size of your business.
In 2017, the average cost that companies had to bear because of data breaches rose by nearly 8%, in a single year. The rough estimate of losses came down to Rs. 11.9 crore ($1.7 million).
Some of the biggest data breaches took place in 2018— the Aadhaar breach, which nearly exposed the data of over 1.1 billion people from across the country.
Kinds of Cyber Attacks
All industries are under the constant threat of cyber attacks. Recent reports inform, ‘Information & Cyber Insecurity’ is ranked the top risk by the Education, Govt./ PSU, Financial Services, Infrastructure, Logistics & Transportation, Medical Services, Telecom and Others.” With all the data of companies saved online, on cloud, or even on a computer, the risk of cyber attacks is vastly enhanced. Hackers use varied ways to tap into all confidential data available on your machine: malware attacks, eavesdropping attacks, password attacks and denial of service attacks.
How do cyber attacks affect enterprises?
Business interruptions: Cyber attacks or loss of data can cause temporary interruptions to businesses. A complete system shut down due to a virus attack on the website of an e-commerce business could affect the sales and revenue of that business.
Security overhauls: Implementing and updating new security systems can cost heavily on the pocket of the company. In addition to the product cost, the training and the process of establishing new policies and procedures subtracts countless hours from the company’s clock.
Legal liabilities: Legal actions are a straightforward consequence of breach of data. Be it in the form of lawsuits that have been filed against a company by the affected third party or merely the company seeking legal advice on how to deal with the situation at hand.
Concessions to customers: To regain the trust of your customers is a hard job. Many businesses offer perks and services to their customers as a sign of goodwill, post a data breach. However, such concessions cannot be made without additional expenses on the company’s account.
Bankruptcies and shutdowns: Not all business can withstand the consequences of data breaches, or cyber attacks, and have to file for bankruptcy, or just shut down. Such incidents have the potential to deplete a company of all its resources, especially if the business is one on a small scale.
What is cyber insurance?
In order to help your organization mitigate financial losses as a result of data breaches, it becomes imperative to have cyber liability insurance. It covers legal liability, direct losses, and the costs that entail in the aftermath. Having cyber liability assurance cover allows companies to focus on building customer relations, and strengthening them, instead of worrying about the expenses that such an incident would bring to the pocket of the company.
Coverage provided by cyber insurance
Cyber liability insurance can cover two types of costs: first-party and third-party. The first-party coverage can cover expenses and costs when the business network is hacked and data is breached, whereas the third-party coverage can offer compensation when a customer or a third-party files a lawsuit for a data breach.
| First party | Third party |
| Data breach/Privacy crises Expenses related to legal costs Regulatory fines Data loss recovery and costs Business interruption or loss of revenue Crisis management and PR cost Cyber extortion or ransom payment |
Costs related to data on third-party-suppliers Costs due to theft of data on third-party systems Intellectual property rights infringement Legal costs, court attendance Regulatory fines |
Cyber risks for small businesses and the need for cyber insurance
Supply-chain risk: a number of small businesses are a part of the supply chain or larger companies. Hackers usually attack the systems of small businesses to gather information about large businesses that have contracted small companies.
Internal employee threats: companies that lack cybersecurity awareness are at a high risk of being attacked by in-house or internal employees who steal data, passwords, launder money, among other instances.
Cloud-based business model: a number of SMEs now adopt cloud-based business models, which enhances efficiency and agility. Cloud-based models are at a higher risk of cyber attacks.
Lack of cyber laws: In India, there is a serious lack of cyber security laws for businesses. This leads to businesses taking their cyber security lightly and in the process increasing the risk to cyber threats.
Use of smartphones: A large number of new age businesses operate from mobile devices, from shared Wi-Fi networks, which are easy targets for cyber attacks.
Lack of budget and time: most SMEs operate on low budgets that do not allow for investments in high-security tools. Moreover, being owner-run or by small teams, small businesses are always short of time to invest in exploring safety measures.
As aforementioned, not many small scale business are able to endure a cyber attack or data breach. With the changing and growing SMEs landscape, the need for cyber insurance has increased. Grim consequences follow cyber-attacks, but one can regain their resources and whatever business they might have lost through cyber liability insurance. PlanCover helps its customers attain the best possible insurance options for their company. For more information on the same, visit our website.
