The WannaCry malware attack in mid-May focused the attention of corporations around the world on escalating cyber threats. Our Flash Report released immediately after the attack noted that it marked a new and unsettling aggressiveness on the part of cyber criminals: No previous assault matched the breadth of impact of WannaCry, which affected hospitals, corporations and government offices in more than 150 countries around the world.
The cost of getting businesses up and running after the attack was expected to potentially add up to billions of dollars. Additionally, some organizations could face lawsuits over their failure to secure the previously disclosed Windows vulnerability that the criminals exploited.
In fact, news on May 23 that Target Corp. had agreed to pay $18.5 million to settle state and financial institution claims stemming from an enormous data breach should have warranted as much corporate attention as the WannaCry event. Hackers stole data from up to 40 million credit and debit cards belonging to the retailer’s shoppers during the holiday season in 2013, and the company disclosed that the total cost of its cyber security failure had amounted to $202 million so far. A settlement stemming from a consumer class action has yet to be finalized.
The grave consequences of weak cyber security – from business disruptions to the expense of repairs and lawsuit payouts – may lead some to believe organizations are scrambling to make cyber liability insurance part and parcel of their IT security protocols. Yet, according to recent surveys, roughly half of U.S. firms don’t have cyber risk insurance, and more than 25 percent of executives without a policy say they have no plans to add one. Among the companies that have insurance, only 16 percent reported that they have policies that cover all liabilities.
There are reasons many companies are reluctant to purchase cyber liability insurance or beef up existing policies, and the two main ones are cost and complexity. Certainly, insurers can improve clarity on their policies and enhance the ability for customers to compare different proposals. And, it may very well be the prohibitive cost of cyber insurance that is causing some companies hit by ransomware attacks to try and recoup their losses using kidnapping, ransom and extortion policies originally acquired to protect workers in dangerous locations.
Even so, a cyber liability insurance policy is a prudent course of action in most cases. Although it should never be a substitute for strong cybersecurity defenses, it can spell the difference between a severely affected and fairly unscathed bottom line in the aftermath of an attack. Before committing to a policy, however, it is important that management teams and their insurance brokers discuss three pivotal issues:
- What kind of cyber liability insurance policy does the company need? Does it need a first-person policy to cover the cost of retrieving data critical to the operation, or does the company possess consumer information that requires protection against third-party lawsuits? Does it need both?
- What amount of coverage does the company want to obtain? This figure will depend on a number of factors, including the size of the company and the type of coverage it needs. To mitigate third-party risk, for example, settlements like Target’s could provide useful benchmarks.
- What is the premium an organization is willing to pay? A number of variables should be used to determine this figure, including a company’s earnings, the size of the IT budget, and the operations or data at risk.
Once a company has answered these questions, it can begin to shop for cyber liability insurance. As part of the process, the management team needs to fully understand what the policies cover. But perhaps most importantly, organizations need to understand what the policies don’t cover, which will ultimately indicate whether the policy is worth the expenditure.
Given the sophistication and prevalence of successful data breaches, it is now more important than ever for companies to analyze whether a cyber liability insurance policy should be a part of their overall cyber strategy.