Data breaches cause companies to lose money and customers. A digital data breach can significantly impact your business finances, with incidents costing an average of $3.9 million, according to 2019 research by IBM. Exposing sensitive customer or client information can tarnish your business reputation and cause the public to lose trust in your company. In fact, a 2018 Gemalto report found that two-thirds of customers are willing to abandon a business that compromises their sensitive or financial information because of a data loss incident. Managing electronic data liability and risks entails a mix of IT security best practices, employee training, and the right insurance coverage.
General Liability Insurance vs. Cyber Liability Insurance
To assess your electronic data insurance needs, it’s important to understand the difference between general liability and cyber liability insurance and what each policy covers.
General liability insurance: is a necessity for most companies and protects against lawsuits stemming from physical injury to a third party, damage to someone else's property, or advertising and copyright infringement claims. When writing policies, insurance carriers make a distinction between tangible property and digital property because each comes with its own risks. Many general liability policies only cover tangible property and exclude information stored, created, used, or transmitted digitally. Some policyholders may get confused because their general liability insurance has a digital data protection endorsement, but this typically only covers data loss caused by physical damage, such as an employee breaking a server.
Cyber liability insurance: Companies that store or transmit digital information will likely need to purchase cyber liability insurance to respond to a data breach and protect themselves from related lawsuits. There are two different types of electronic data insurance coverage with a cyber policy:
First-party response: This version of cyber liability insurance pays for notifying affected customers that their data has been compromised and providing them with credit and identity monitoring services. It also covers PR and advertising campaigns to help rebuild the reputation of your business.
Third-party defense: Third-party electronic data insurance protects your business if customers sue you because their information was exposed in a data breach.
Note that states have different guidelines and requirements for managing data breaches, so check your local laws before you finalize a policy.
Tips for Buying Cyber Liability Insurance
When considering cyber liability insurance, there are a few things you can do to ensure that you have adequate protection. Assess your industry risks, employee count, and the amount of electronic information you handle will determine your risks and data insurance needs. Nearly all IT and e-commerce businesses should carry cyber liability insurance, but healthcare organizations actually stand to lose the most from a data breach. IBM puts the cost of an average incident in the healthcare industry at nearly $6.5 million. Healthcare practitioners can greatly reduce their digital data risks by complying with the HIPAA security rule.
Put coverage before cost since a data breach can cost a business millions of dollars, resist the urge to make decisions solely based on price when purchasing cyber liability insurance. Buying a policy with a lower deductible might save money in the short term, but if a data loss disaster strikes, you could end up paying more out of pocket to respond to it or defend yourself in court.
Review and ask questions about your coverage. Take time to review your cyber liability insurance policy, and ask your agent for clarification about any unclear language.
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