The use of Internet and information technology has helped small and large businesses to a great extent. They have made their work a lot more easy from what it used to be a few years ago. Even though companies are reaping their benefits, they are exposed to many risks associated with them. The greatest loss to any business in the loss of valuable information. According to research conducted by Poneman Institute, 85% business organizations have suffered losses due to breach in data security. Furthermore, a survey conducted by the FBI suggests that 64% companies suffered huge monetary losses because of hackers in the year 2005. This is why, businesses have now realized the importance of cyber insurance and have started making use of it.
It is a product like any other insurance policy, that is brought by businesses to protect themselves from risks involved with Internet and information technology. Such risks are not covered under commercial liability policies which is why, the need of such an insurance comes into picture. It provides cover for losses due to hacking, denial of service attacks, destruction or loss of data, etc. Protective measures like anti-spam systems, virus protection, etc., fail at some point in time as they are not 100% foolproof. After a security breach, businesses need to restore their information systems, clean up infected files, etc., due to which they fail to continue their business for quite some time. All this calls for a lot of expenditure in times when they are not making money. At such instances, this coverage supports them to take care of their financial needs.
This insurance product provides coverage for liabilities that might arise due to web content and media, private and secure customer information, threat against computer systems and website, business interruption, and recovery of information technology infrastructure. Any loss or financial expenditure occurring due to these events is covered under the policy and claim can be made to make up the losses.
First and the most important benefit of cyber insurance is that in case of a security breach, it acts as a funding resource to cover up the losses and bring back businesses to normal working, without raising the need of government assistance. Secondly, it evenly distributes the risks among companies by charging high premiums from the ones having higher risk of such instances, while charging less from businesses with little risk. Lastly, it indirectly encourages businesses to adopt good security measures like tracking website visitors, etc., because companies with poor security systems need to pay higher premiums.
Despite the benefits, there are some problems associated with this kind of insurance. One is that, insurance companies do not have sufficient actuarial data as this product is recently developed by the insurance industry. Because of this, insurers fail to estimate the amount of premium that must be charged so that in case of an event, the insurer has enough finance for claim settlement. Secondly, insurers fear "cyber-hurricanes". This is a term used for situations when excessive number of claims arise due to a security breach. Such situations are difficult to manage by the insurer and may drain them out completely.
Like other insurance products, the premium charged depends on the coverage amount and the risks involved. Typically, for $1 million coverage, the premium charged is $3,500 with a deductible of $5,000. This amount is not fixed and may vary depending on the insurer and the time of issuance of the policy. The amount of premium charged is higher for business with relatively poor security measures as compared to the ones who are better equipped.
No matter how stringent a company's security measures are, it always has some kind of threat. To save themselves from financial crunch during such untoward situations, many companies are now opting for cyber insurance. It is true that this product is a costly affair nowadays, but it will gradually become simpler and cheaper as more and more insurance companies will start offering this product in the market.