Most modern businesses rely on data to work smarter and provide better customer service; however, this reliance makes them more vulnerable to cyber breaches. Despite this lurking vulnerability, many small businesses neglect their cybersecurity, assuming they aren't big enough to be targeted, but that's not the case.
"If you are conducting business, you are a target," said Karen S. Evans, Managing Director of the Cyber Readiness Institute. "Small and medium-sized businesses are often more attractive targets because the bad guys know they pay less attention to security than larger corporations."
With threats like data breaches and ransomware rising, small businesses should take preventive measures now to protect themselves — including evaluating their cyber insurance needs.
Assessing your small business's cyber risks
To determine your business's cyber insurance needs, start by evaluating your existing cyber risks and the type of threats most relevant to your business. Depending on the nature of your business and the data you handle — such as payment information, personally identifiable information, proprietary assets like designs or recipes, or protected health information — you may be at greater risk for common attacks like ransomware, phishing, or spyware.
Another risk is working with third-party vendors, where issues of poor data handling or inadequate security measures can expose your business to breaches. Knowing and assessing your vendor's cybersecurity practices is crucial to ensure your insurance policy sufficiently covers liabilities originating from third-party breaches.
Other factors that put companies at risk include how much web interaction they have with customers, if their employees use their own devices at work, and how much the business relies on confidentiality. Any company practicing one or more of these factors should make creating a robust policy a priority.
[Read more: What Is a Cyber Risk Score?]
How much cyber insurance does your business need?
Any company with internet access and data is susceptible to a cyberattack that could put it in a financial hole. The question then is not whether your small business needs cyber insurance, but how much coverage you need.
Depending on your specific provider, coverage, and risk factors, here are some specific ways cyber insurance can help your business:
- Cyber insurance agents can recover lost data and devices that were targeted in an attack.
- Agents will comply with all notification requirements, informing all of your customers of the breach and your response.
- Insurance agencies will inform the proper authorities of the attack to start an investigation.
- Your cybersecurity agency will help determine the extent of the breach and how to amend those insecurities.
- Insurance can help cover the cost of disruption to your business, revenue loss, and equipment damage.
- Your insurance provider can help cover costs toward legal fees and public relations expenses.
When gauging your insurance coverage needs, consider factors like your current cybersecurity practices — how protected is your business? Investing in cybersecurity can yield more affordable insurance rates, as providers often reward proactive risk management.
Next, assess your risk exposure by evaluating the type and volume of sensitive data you store. Businesses handling large amounts of sensitive data may need more specialized coverage than those with minimal exposure. This assessment helps you choose the right policy type and coverage to protect your business against cyberthreats.
[Read more: A Guide to Choosing the Best Small Business Insurance Coverage]
If you are conducting business, you are a target. Small and medium-sized businesses are often more attractive targets because the bad guys know they pay less attention to security than larger corporations.
Karen S. Evans, Managing Director of the Cyber Readiness Institute
How to choose a cyber insurance provider and policy
Before purchasing a cyber insurance plan, explore your options carefully to ensure you choose a policy that fully meets your business needs.
1. Understand what coverage is available to you
When looking at cyber insurance policies, there are two main types of coverage: first-party coverage covers the financial loss due to a data breach of the insured, while third-party coverage covers the financial loss resulting from a breach of other data, including that of your customers, partners, suppliers, vendors, or other associates. Many policies use a hybrid of the two types of coverage. When evaluating insurance policies, determine whose data you are trying to protect and to what extent.
"Just like you would with home or auto insurance, you want your policy to be as comprehensive as possible, within your budget," Evans explained. "Right now, the availability and coverage offered by cyber insurers varies greatly, so you need to look closely at what coverage potential providers offer."
If your company deals with limited outside data, you may want your policy to be only internal. However, most businesses collect some sort of customer data, like names and contact information. Carefully consider the data you collect from others, and if necessary, look into covering the loss from a third-party data breach.
2. Ask what is and isn't covered
When looking for the right coverage, a significant consideration is whether your core business functions and needs will be covered. Evaluate your business risks to determine if you need a policy with blanket coverage or one focusing on specific attack types.
"Most policies will cover financial consequences stemming from the breach of sensitive data, as well as any disruption to normal operations," Evans said. "But, depending on your business, you may need other options — for example, coverage for legal fees, notification costs, or public relations expenses."
According to Evans, determining what isn't covered under the policy, such as losses from social engineering schemes, deliberate employee misconduct, or cyberattacks linked to foreign entities, is equally important. Your policy may not be triggered during certain attacks if it has exclusions.
3. Find out how to lower your premiums
Affordability is a significant factor when choosing cyber insurance, but cost shouldn't prohibit you from choosing a provider who otherwise meets your needs.
"Always ask potential providers what you can do to lower premium costs," Evans suggested. "You'd be surprised what simple yet effective steps you can take to reduce your expenses while protecting your assets."
One such step is implementing multifactor authentication (MFA), which requires users to verify their identities through at least two factors: a password, biometrics, or a smartphone. MFA can lower your cyber risk (and, therefore, your premium).
"MFA is no longer a luxury or an optional security feature — it's a fundamental necessity for every SMB," Evans said, referencing a U.S. Cybersecurity and Infrastructure Security Agency study that shows MFA reduces the likelihood of businesses being hacked by 99%.
[Read more: What Is Multifactor Authentication?]
Steps like adopting a cybersecurity framework, training staff, and developing an incident response plan can also help lower premiums, along with practices like regularly backing up data and managing vendor risks.
By taking proactive steps to boost cybersecurity, businesses can lower expenses while safeguarding their own and their customers' data.
Dan Casarella contributed to this article.
CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.
CO—is committed to helping you start, run and grow your small business. Learn more about the benefits of small business membership in the U.S. Chamber of Commerce, here.
