Why Small Businesses Need Cyber Insurance

December 18, 2023

Cyber criminals are attacking small businesses, too. What happens when your computer system is hacked and your customer data is exposed and/or stolen? Cyber liability insurance can help pay for the costs that come with a cyberattack on a small business.

When you have cyber liability insurance in place, it helps your business mitigate the financial and reputational risks that come with data breaches and cyberattacks.

Here's how cyber liability insurance helps your small business:

Financial protection: Cyber liability insurance helps cover the financial losses associated with a data breach. This includes costs like forensic investigations to determine the breach's extent, notifying affected parties, and providing credit monitoring services to customers.

Legal support: In the event of a data breach, small businesses may face legal actions or regulatory investigations. Cyber liability insurance can cover the legal fees and potential fines associated with such actions.

Data recovery: It can assist in the recovery of stolen data and the restoration of systems. Some policies may also cover the costs of data restoration and the removal of malware or ransomware.

Public relations: Data breaches can damage a small business's reputation. Cyber insurance may provide resources to manage public relations and rebuild trust with customers.

Business interruption: Some policies cover income loss due to a data breach that disrupts operations, helping businesses stay afloat during recovery.

Notification costs: The cost of notifying affected customers or clients about a data breach can be significant. Cyber liability insurance can cover these expenses.

Regulatory compliance: It can help small businesses comply with data breach notification laws, which often require timely reporting to affected parties and regulators.

Third-party liability: If a data breach affects third parties (e.g., clients, vendors), the insurance can help cover liability claims and legal costs.

Cyber extortion: If a cybercriminal attempts to extort money from a small business in exchange for stolen data or to prevent a data leak, some policies cover negotiation and ransom payments.

Cybersecurity consultation: Insurance providers may offer access to cybersecurity experts and resources to help prevent future breaches.

What are the biggest cyberthreats usually facing a small (and medium-sized) business owner?

1. Ransomware attack: Ransomware encrypts a business’s data and demands a ransom for the decryption key, threatening data loss or exposure. It continues to be one of the top cyberthreats to Canadian businesses and it can have a serious impact on your business’s ability to function.

2. Phishing: Phishing attacks use deceptive emails, websites, or messages that can trick your employees into revealing personal information, such as passwords and credit card details.

3. Employees: Employees acting maliciously or accidentally putting your data at risk. Your employees are your first line of defense against cyberattacks and they need training to be aware of these attacks.

4. Social engineering: Cybercriminals exploit human psychology to manipulate individuals into disclosing confidential information or performing actions that compromise security.

What if a customer sues me?

If a customer sues your business for a data breach, having cyber liability insurance in place can be instrumental in managing the situation.

Here's how cyber insurance can help in the event of a lawsuit:

Legal defense: Cyber liability insurance typically covers the legal costs associated with defending your business against a lawsuit resulting from a data breach. This includes hiring attorneys, court fees, and other legal expenses.

Settlement costs: If the lawsuit results in a settlement, the insurance can help cover the settlement amount or any court-ordered damages that you are required to pay to the affected customer.

Notification and credit monitoring: If the lawsuit involves claims related to notification and credit monitoring costs for affected parties, the insurance can cover these expenses.

Public relations: The insurance may provide resources for managing public relations during the lawsuit, helping to protect your business's reputation.

Regulatory fines and penalties: Some policies include coverage for fines and penalties imposed by regulatory authorities in connection with the data breach.

Third-party liability: Cyber liability insurance can also cover legal expenses and damages if a third party, such as a customer or vendor, sues your business for the breach.

Cybercrime continues to be the cyber threat activity most likely to affect Canadians and Canadian organizations.