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The Importance of Getting the Right Cyber Insurance Policy


Work with Cyber Insurance Experts to Buy the Right CoverageWork with Cyber Insurance Experts to Buy the Right Coverage

Sony is the latest high-profile company that has kept the ever-emerging risk of risk in the spotlight. As a result of the spate of publicized data breaches, not only do you have companies looking at implementing increased security measures but also many rushing to purchase cyber liability insurance. Of course, purchasing the right type of policy depends on the type of business you have, the size of your business, and other factors must come into play when securing insurance.

What Does Cyber Liability Insurance Cover?

Without a doubt, cyber liability insurance is an important part of a company’s overall cyber security plan. It’s designed to provide first- and third-party coverages:

First-party insurance, which can be designed to include: forensic investigation, which covers the insured for costs and expenses determining whether a cyber attack has happened, how it occurred, and how to prevent the attack/loss of data; data loss and restoration, which covers physical damages to computers (and related items) including the expense to retrieve and restore data, hardware, software or other information damaged or destroyed in a cyber attack; network business interruption coverage, which covers lost income and operating expenses due to a material interruption or suspension of an insured’s business caused by a network security failure; cyber extortion, which protects against hackers who attempt to extort money with threats to release sensitive information/data if a ransom is not paid as well as for hackers attempting to hold a network or data on the network hostage; and theft and fraud, which covers losses related to the loss or destruction of the insured’s data as a result of criminal or fraudulent cyber attack.

Third-party insurance, which can be designed to include: notification costs/credit monitoring costs to notify customers about the cyber event as well as mandatory credit/fraud monitoring expenses; litigation expenses, which covers defense costs, judgments, settlements and related liabilities caused by plaintiffs who bring suit against the insured; defense of regulatory proceeding, which covers defense costs to prepare for and defend against regulatory proceedings including legal, technical and forensic work. Some policies also cover certain fines and penalties that may be assessed against the insureds as well as costs related to responding to government inquires about the cyber event. Also available is coverage for crisis management costs and online defamation and copyright and trademark infringement.

Understanding What’s Available

There are many types of policies available, offered by roughly about 25 insurance carriers. Therefore it’s important to understand the language of each current policy on the market, the relevant risks that need to be insured, and the types of coverage available under each policy form. For example, be sure to have a cyber insurance expert explain to you the technical jargon found in some policies that may limit the scope of the insurance provided or allow for loopholes or exceptions that may render the insurance inapplicable to many breach incidents.

Also, some insurers’ policies come with IT assessment services, training and compliance forums, and/or offer a suite of expert consultants to assist with crisis management, legal responses and forensic work. It’s wise to know about these available options to help determine which policy to purchase.

In addition, other policies also may respond to a cyber-related claim, depending on the losses and/or allegations. For example, in the wake of a cyber event, there are potential exposures for boards of directors alleging failure to exercise proper business judgment in preparing for or dealing with a cyber event. Directors and Officers (D&O) Liability insurance can be designed to cover these types of derivative claims. Certain provisions of the Health Insurance Portability and Accountability Act (HIPPA) and the Health Information Technology for Economic and Clinical Health (HITECH) Act require prompt notice of a cyber event and provide for penalties in the event of a data security breach. A strong Fiduciary Liability policy may respond to some of the notice expenses as well as certain penalties from a cyber event. There are also other lines of coverage that may provide some limited protections against a cyber event include Employment Practices Liability, Crime coverage, and Technology Errors & Omissions coverage. The key is in coordinating the various types of coverages that may apply, the amounts, limits, what is covered, and how coverage is triggered, which takes an expert in each of these areas.

Axis Insurance Services specializes in cyber liability insurance and works with several insurance carriers that provide broad, competitive programs. We also specialize in D&O insurance, Fiduciary Liability, Employment Practices Liability, Crime, and Errors & Omissions and can review each of your management liability insurance coverages to establish a coordinated, sound insurance program that addresses the various aspects of cyber risks. Give us a call at (877) 787-5258 to discuss your specific needs.

Sources: Mondaq Business Briefing, Huffington Post

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Blogged on: January 30, 2015 by Mike Smith
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