The Importance of Cyber Insurance for Small Business

All businesses require some form of insurance, even if it’s a simple life policy for a single person acting as a DBA (Doing Business As). But in today’s high-tech driven business environment, cybersecurity is becoming a major concern. Since small businesses can run the risk of losing big, it’s become customary in the 2020s to hold crypto insurance.

What exactly is cyber insurance? 

According to leading specialist insurer, Hiscox, who provides cyber insurance for small business of all types, cyber security insurance is engineered to protect businesses against losses that are technology or computer related. Also known as cyber liability insurance and cyber risk insurance, it provides the business owner with a protective financial blanket against cyberattack, data breaches, or due to laptops that contain sensitive information that’s either lost or stolen.

That said, what’s the overall importance of cyber insurance when it comes to small businesses? A recent report by Allbusiness states that the quick advancement of high-tech in today’s’ business environment is a “double-edged sword” due to threats in cybersecurity that have expanded during the past ten years. One survey showed that close to 50 percent of SMBs have experienced a cybercriminal attack. Last year, the global average cost of data breaches was said to reach around $5 million. That represents a ten percent increase from 2023.

Maybe big-name companies can survive cyberattacks, but small businesses can easily be put out of business. This is the reason companies of all sizes need to safeguard against such attacks with cyber insurance. But is the investment in cyber insurance truly worth the cost?

Cyber insurance companies say yes. Here’s why.

Total Financial Protection Against Cyberattack Incidents

Cyber insurance is engineered as a financial safety net for companies, big and small. It covers the many costs associated with an attack by cybercriminals including legal fees, data restoration, and even customer notification that normally follows a breach. For SMBs that typically have fewer resources, it can mean the difference between full operations recover, or a company closure.

Safeguarding Trust and Reputation 

A breach can present a major problem for small businesses. It can lead to a struggle for them to rekindle and rebuild customer trust. After all, small operations simply don’t enjoy the same brand resilience that larger companies do. But cyber insurance is designed to assist with public relations expenses plus other necessary measures that can minimize reputational damage.

The Encouragement of Best Business Practices 

Certain cyber insurance policies are said to incentivize small businesses to implement more aggressive and decisive cybersecurity measures. It’s possible insurers will require regular employee training, risk assessments, along with the adoption of advanced cybersecurity tools. Employee training is considered essential since human error is believed to account for nearly 90 percent of all cyberattacks. This highlights the need for heightened awareness, plus mitigation efforts.

Customized Coverage for SMB Wants and Needs 

Unlike bigger organizations and enterprises, SMBs possess particular needs. Cyber insurance can be tailored to deliver protection against the specific risks a company is likely to face. This kind of targeted approach means SMBs won’t be spending too much cash on coverage that’s not needed.

There are some reasons cyber insurance might not be worth the cost for your business. It’s important to keep in mind that while the many benefits of cyber insurance are promising and even necessary, this kind of insurance can have drawbacks that cause some business owners to reconsider.

Comprehensive Policies Pose High Premiums 

The cost of cyber security insurance is said to be one of its most significant disadvantages. Premiums tend to be expensive especially in the wake of more frequent attacks. Companies that store lots of sensitive data and information and who endure frequent breaches will face higher premiums than competitors who store only limited data. It all depends on the nature of the business.

What this means is that cyber insurance might not be worth the cost depending on the business size and the level of the coverage it requires. This can be especially relevant for small businesses working with a limited budget.

Limitations and Exclusions

Experts agree that not all cyber insurance policies are created equal. Depending on the business, some policies will naturally be more comprehensive than others. Basic cyber insurance plans might not cover more than simple threats such as supply chain vulnerabilities and insider attacks. Insider threats are said to pose the biggest risk to businesses. The total average cost to fix insider threats is around $16 million per year. It’s important that business owners and managers review the differences between policies and therefore make the best decision for their company going forward in the high-tech 2020s.

False Security Blanket 

Allbusiness states that a cyber insurance policy is not the “be-all and end-all” when it comes to protecting your business from cyber hacks. Companies, big and small, need to use it as support and not a replacement for other cybersecurity measures. Companies and organizations that rely only on their cyber insurance policy without taking other proactive defenses could very well find themselves unprepared for the aftermath of a major attack that might very well put them out of business.

Today’s business environment is rapidly going high-tech especially with AI becoming so prevalent. While technology is a boon to even the smallest businesses, it can also come with its dangers in the form of cyber security breaches. While there can be cons to obtaining a cybersecurity insurance policy, especially when it comes to cost, it’s best to consult with a cyber security insurance expert who can tailor a policy for any business that won’t cost an arm and a leg. In the end, it’s better to be protected than unprotected.

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