Cyber Liability: What Every Business Owner Needs To Know

By Gary Wobb on November 19, 2012

Group of executives having a meeting in the board room

Gen. Keith Alexander, director of the National Security Agency and commander of the U.S. Cyber Command, addressed widespread cyber attacks that have recently hit major corporations.

“From my perspective, this is huge,” Alexander said November 7, 2012 at a symposium sponsored by the computer security firm Symantec. “When we look out there – the companies that have been hit – you look across the board: Everybody’s getting hit.

“In 2012, just some of them — Nissan, MasterCard and Visa: That should make all of us concerned. [In] 2011, RSA, COMODO, Epsilon, L-3, Sony, Citi, Lockheed Martin, Northrup Grumman, Google, Booz Allen, DigiNotar, Mitsubishi, Sony, Adidas…”

And worldwide, cyber crime losses (including phishing and malware attacks) reached a remarkable $110 billion between July 2011 and the end of July 2012, according to a report released by security company Symantec.


Loss Potential Worse for Cyber Liability Incident or Fire?

As the world continues to change faster than it ever has we’re presented with new opportunities but also new risks. The Internet has transformed industry after industry and has changed our lives in ways never before imagined.

There is no question that businesses benefit from the power, speed and efficiency of the Internet but at the same time there is a whole new realm of risks that must be addressed. While the Internet has opened up new possibilities for economic growth and innovation it’s also opened up a whole new world of security, privacy, intellectual property, employment practices, and other legal risks.

Most business owners understand the need for traditional insurance (i.e. building, contents, equipment, business interruption, etc.). But unfortunately the majority of businesses don’t recognize the loss potential of a cyber liability incident. In fact, most organizations would be better off to suffer a fire loss than a cyber liability loss.

With less than 1% of businesses carrying some form of cyber liability insurance, it’s imperative that business owners understand the new world we live in and the corresponding risks. Remember, it only takes one devastating loss to shipwreck a business.


What Does Cyber Liability Insurance Cover?

Since the majority of business owners are not familiar with what cyber liability insurance covers, let’s look at the definition:

Cyber Liability insurance covers the first- and third-party risks associated with conducting business on the Internet, networks and informational assets. These risks include: privacy issues, virus and malware transmissions, infringement of intellectual property, notification cost and more.

In other words, cyber liability insurance protects your business from potential damages incurred by conducting business online, including denial of service (a potential business interruption loss.)


Is Cyber Liability Only for Big Businesses?

If you think cyber liability insurance is only something big organizations need to worry about, think again.

According to Verizon’s 2011 Data Breach Investigations Report, the main targets for hackers are small to medium-sized businesses. These cyber criminals consider smaller companies easy prey because they typically don’t have the complex security measures in place that big companies do.

So really, if you’re a smaller company your risk of becoming the victim of a cyber attack is greater.


4 Cyber Liabilities

It’s important to understand the difference between the risks of “cyber liability” and becoming the victim of a “cyber crime.” When we talk about cyber crimes and cyber liability most people assume that being “hacked” is the main risk they should guard against. But companies also need to take action in order to minimize their risk for cyber liability.

For example, here are some scenarios you could be held liable for:

  • If you or an employee inadvertently pass along a virus or any other type of malware.
  • If you or an employees obtains unauthorized access to another company’s information or if confidential information is disclosed/misused.
  • If you or an employee do not follow federal and state regulations controlling notification of customers whose personal data has been compromised.
  • If you or an employee knowingly (or unwittingly) slander another company in a blog, email or on a social media post
  • If you or an employee infringe on copyrighted material.
  • If a company laptop or mobile device containing sensitive information is stolen.

What Can You Do?

The best thing you can do is to be proactive regarding cyber liability and cyber crimes. If you’re one of the 99% that doesn’t carry cyber liability insurance then call your agent to get a quote today. And even if you have cyber liability insurance it’s important to review your policy to make sure the scenarios discussed above would be covered by your current policy.

Too many businesses learn the hard way when it comes to cyber liability. Please, don’t let that happen to you!

If you have any questions or comments please leave your reply below.

8 Responses to “Cyber Liability: What Every Business Owner Needs To Know”
  1. Donna says:

    If I experience a cyber crime how does the insurance help with managing my crisis? Does it assist in getting my systems back up and running? If my company’s reputation is tarnished, can the insurance help with the costs associated with restoring my company’s reputation?

  2. Bob Miller says:

    Yes to all- these coverages can be included in the various forms. Some markets include these at no charge- but there usally is a separate limit applied -sometimes called a “sub-limit”.
    If you like I can send some specimen policies.
    Bob Miller

  3. This is a good article, Gary. Thanks for sharing. I will pass it along to my customer with your contact information.


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