Why Cybersecurity Insurance Is Essential for Businesses

January 29, 2025

In today’s digital world, cybersecurity threats are common. Hackers, ransomware attacks, and financial fraud can target businesses of any size. To reduce these risks, many companies buy cybersecurity insurance. However, it’s important to understand the details of these policies, such as what is covered, what is not, and any requirements, in order to make the best decisions.

What is Cybersecurity Insurance?

Cybersecurity insurance (or cyber liability insurance) helps businesses recover financially and operationally after a cyberattack. Policies are typically divided into two categories:

First-party coverage: Addresses direct losses to the insured business (e.g., data restoration, business interruption).
Third-party coverage: Covers claims from affected customers, vendors, or partners due to the business’s negligence (e.g., lawsuits, regulatory fines).

Why Cybersecurity Insurance is No Longer Optional?

Let’s face it: Cyberattacks are skyrocketing.

Small businesses are now the #1 target (Verizon 2023 Report).
The average cost of a data breach hit $4.5 million in 2023 (IBM).
Ransomware attacks spiked by 95% this year, with hackers demanding payments in crypto to stay anonymous.

Real-World Example:
In August 2023, MGM Resorts was crippled by a ransomware group that stole customer data and shut down casino systems for days. The attack reportedly cost the company over $100 million in losses. Their cybersecurity insurance covered parts of the ransom and recovery—but not all.

What Does Cybersecurity Insurance Actually Cover?

1. Data Breach Costs

If hackers steal customer emails, credit card numbers, or health records, your policy should cover:

Forensic investigations (to figure out how the breach happened).
Customer notifications (think post-breach emails and credit monitoring).
Legal fees (lawsuits from angry customers or regulators).

But here’s the catch: If your business didn’t have basic protections like multi-factor authentication (MFA), insurers might deny your claim.

2. Ransomware Payments

Yes, many policies still cover ransom payments (controversial, but true). For example:

The MoveIT Data Heist: In 2023, hackers exploited a file-transfer tool to steal data from Shell, BBC, and the U.S. Department of Energy. Insurers paid ransoms to prevent leaks.

Warning: Some insurers now limit ransomware coverage or require proof you’ve trained employees to spot phishing emails.

3. Business Interruption Losses

If a cyberattack shuts down your website, payment systems, or production lines, insurance can reimburse:

Lost sales during downtime.
Extra costs to get operations back online.

Example: A 2023 attack on a Midwest hospital chain forced them to cancel surgeries for a week. Cyber insurance covered $2.8 million in losses.

4. Surprising Exclusions

Most businesses don’t realize their policy doesn’t cover:

“Acts of War”: If a hacker group is linked to countries like Russia or North Korea, claims related to the cyberattack may be denied, as it may fall under “acts of war” exclusions.
Outdated Software: Got old systems like Windows 7? Insurers consider this “negligence,” and they may refuse to cover any incidents that arise due to using outdated software.
Employee Mistakes: If your accountant falls for a phishing email or makes a mistake, some policies might not cover the resulting damages.
Reputation Damage: If your company’s reputation takes a hit after a breach, the costs of rebuilding trust are usually not covered—unless you purchase specific add-on coverage.
Pre-existing Vulnerabilities: If your business already had known security flaws before getting the insurance, those issues might not be covered.
Negligence: If your company doesn’t follow basic security measures or fails to address known risks, any related cyber incidents may not be covered.
Employee Misconduct: If an employee intentionally causes harm or a breach, many policies won’t cover the damage caused by their actions.
Unpatched Software: If your company doesn’t regularly update or patch its software, you could be left with no coverage in the event of a breach caused by those vulnerabilities.
Third-party Actions: Claims from breaches caused by third-party vendors or partners may not be covered, unless explicitly stated in the policy.
Intellectual Property Theft: Some policies exclude coverage for the theft of intellectual property during a cyberattack.

Pro Tip: Always ask for a full list of exclusions before signing anything.

How Much Does Cybersecurity Insurance Cost?

Rates vary wildly, but here’s a rough guide:

Small businesses: 1,000–$5,000/year.
Mid-sized companies: 5,000–5,000–20,000/year.
Large enterprises: $50,000+/year.

3 Ways to Lower Your Premium:

Train employees annually on phishing scams (insurers love this).
Use encryption for sensitive data.
Install an endpoint detection and response (EDR) tool like CrowdStrike.

“Should I Buy Cybersecurity Insurance?” 3 Questions to Ask

Do we handle sensitive data? (e.g., credit cards, health records).
Could we survive a week of downtime? (Most small businesses can’t).
Are our backups secure? (If hackers delete your backups, recovery costs soar).

If you answered “yes” to any, insurance is worth a closer look.