5 Types of Cyber Insurance Coverage and What to Watch Out For

What Is Cyber Insurance Coverage?

Cyber liability insurance coverage applies to financial losses resulting from cybersecurity events, such as data breaches. Insurers offering cyber coverage provide policies that vary greatly, but most of them offer the following coverage:

• First-party coverage — the insurer pays the organization’s expenses incurred directly due to a security breach.

• Third-party coverage — this policy covers damages or settlements the organization must pay due to suits or claims for injuries resulting from the organization’s actions or failure to take action.

For example, consider a data breach in which attackers steal customer data and leak it online. First-party coverage applies to the expenses incurred directly as a result of the breach, such as forensic investigation and recovery. Third-party coverage applies to lawsuits by customers against the company in connection with their leaked data.

This is part of a series of articles about cyber insurance.

5 Types of Cyber Security Insurance Coverage

Cybersecurity insurance provides various coverages to protect businesses from risks, including:

1. Privacy Liability Coverage

Privacy liability coverage is essential for organizations handling sensitive employee and customer information. It helps protect the organization in the event of a data breach that exposes private data and exposes the organization to liability.

This coverage protects from liabilities resulting from privacy law violations or cyber incidents related to private data. These events often incur third-party liability costs due to contractual obligations or regulatory investigations.

For example, some policies cover consumer class-action litigation, funding a settlement in the aftermath of a data breach, or another cyber incident. If the organization faces a regulatory investigation by law enforcement, privacy liability coverage can cover penalties, fines, and legal expenses.

2. Network Security

Network security coverage protects an organization during network security failures, such as data breaches, cyber extortion demands, malware infections, business email compromise events, and ransomware.

It covers first-party costs incurred directly as a result of a cyber incident, including IT forensics, legal expenses, data restoration, ransomware negotiation and payment, breach notification to consumers, public relations expenses, setting up a call center, credit monitoring, and identity restoration.

3. Network Business Interruption

Network business interruption coverage helps organizations facing an operational cyber risk. It includes loss arising from system failures, such as human error or a failed software patch, and security failures, like a third-party hack.

For example, when an on-premises network or a provider’s network shuts down due to an incident, organizations relying on the network to operate can use this coverage to recover lost profits, fixed expenses, and additional costs incurred while being affected by the incident.

4. Errors and Omissions Coverage

Errors and omissions (E&O) coverage can protect organizations from cyber events that hinder the delivery of services to customers and prevent fulfilling contractual obligations. It includes claims about errors or performance failures in services, like software and consulting services, and traditional professional services by doctors, lawyers, or engineers.

E&O coverage also protects against allegations of negligence or breaches of contract, covering legal defense costs incurred due to a lawsuit or customer disputes.

5. Media Liability Coverage

This coverage protects organizations from intellectual property infringement, excluding patent infringement. It usually applies to printed and online advertising, including an organization’s social media posts.

What Is Not Covered By Cyber Liability Insurance?

Cybersecurity insurance policies typically exclude issues that were caused by human error or negligence or could have been prevented. Here are common exclusions:

• Poor security processes — attacks that occur due to ineffective security processes or poor configuration management.

• Prior breaches — security events or breaches that occurred before the organization purchased a cyber insurance policy.

• Human error — cyber attacks caused due to human error by the organization’s personnel.

• Insider attacks — data theft or loss occurring due to an insider attack by an employee.

• Pre-existing vulnerabilities — breaches that occurred because the organization failed to correct or address a previously-known vulnerability.

• Technology system improvements — costs related to technology improvements, such as hardening networks and applications.

Cyber insurers typically offer customers a list of vetted providers to work with, such as:

• Pre-breach providers — help organizations assess their security posture and prepare to improve their resilience to cyber events.

• Post-breach providers — guide organizations as they navigate through an event — for example, legal firms, forensic service providers, and public relations companies.

Ideally, organizations should choose an insurer that provides a comprehensive set of coverages and various expert vendors that help prepare, prevent, and protect organizations from a cyber event.

Cyber risk insurance requires organizations to demonstrate they take action to protect their networks against threats. An organization that does not protect the network might not be approved for insurance or get charged a high rate.