The modern digital era has revolutionized the business world. With the advancements in technology, challenges such as cyber threats and data breaches have emerged. To protect against such vulnerabilities, individuals and organizations are turning towards cyber insurance. But what does cyber insurance cover, exactly? This blog intends to provide an in-depth understanding of the scope of cyber insurance and its coverage.

Cyber insurance can be seen as a safety net for businesses and individuals against the costs and potential damages of cyber incidents. Typically, it compensates for the loss resulting from cyber-attacks like hacking, viruses, and other threats that can affect your computer systems.

Understanding cyber insurance

Cyber insurance, also known as cyber liability insurance coverage (CLIC), is a specific form of insurance designed to protect businesses and individuals from Internet-based risks, mainly risks relating to information technology, information security, and data breaches. It's a way to mitigate risk exposure by offsetting costs involved in recovery after a cyber-related security breach or similar event.

What does cyber insurance cover?

The coverage offered by a cyber insurance policy can largely be segmented into two categories: first-party and third-party coverages. These terms refer to the policy holder (first party) and individuals or businesses (third party) that may file a claim against the policy holder.

First-Party Coverages

First-party coverage in a cyber insurance policy refers to the direct costs borne by the policy holder in the event of a cyber incident. This typically includes the following:

• Data breach/loss recovery: This coverage helps in recovering lost or damaged data as a result of cyber events. This can cover both the internal costs of data recovery and the cost of hiring external expertise and services.
• Business interruption: Following a cyber incident, the insured can experience substantial business interruption. This coverage helps mitigate the lost income during the downtime and extra expense incurred to restore operations.
• Network security and privacy liability: Following a data breach, the insured could potentially face litigation due to failure to protect sensitive data. This coverage provides legal and settlement costs.
• Notification costs: After a breach, many jurisdictions require the organization to notify the customers who have had their data compromised. This coverage helps in tackling the hefty notification and postage costs.
• Crisis management: A significant breach could result in reputational damage. This coverage assists in funding a PR response to manage and restore the company’s reputation.

Third-Party Coverages

Third-party coverage in a cyber insurance policy relates to the costs borne by the policyholder due to claims made against them as a result of a cyber incident. It typically includes:

• Network security and privacy liability: This includes legal costs, settlement costs, and court-ordered damages incurred due to a claim of failing to protect sensitive data or causing a virus outbreak.
• Electronic media liability: For publishers and content providers, there is a risk of infringements due to copyright/trademark, defamation, and libel in the digital sphere. This coverage provides protection against such claims.
• Regulatory fines and penalties: Coverage for fines and penalties imposed by industry-specific regulatory bodies for failing to keep customers’ confidential information safe.

What cyber insurance doesn’t cover

It's equally essential to remember that, like any insurance policy, cyber insurance won't cover everything. Some exclusions commonly seen in cyber insurance policies include:

• Property Damage: Physical damage to property from a cyber event is typically excluded as it's more aptly covered under a standard commercial property policy.
• Bodily Injury: Similar to property damage, bodily injury arising from a cyber event is usually excluded and more aptly covered under a general liability policy.
• Criminal Acts: If an insured party intentionally acts in a way that leads to a breach or attack, coverage does not apply.

In conclusion, knowing what cyber insurance covers is crucial for businesses operating in today's interconnected world. While it might seem like a maze with multiple factors to consider, deciphering the world of cyber insurance can provide significant benefits. With cyber threats posing a critical risk to every organization, cyber insurance can help mitigate these threats and protect your entity from substantial financial losses. Always scrutinize your policy to gain a full understanding of its coverages –and its exclusions– to ensure you are well-protected against the ever-evolving cyber threats.