Cybersecurity insurance (also known as cyber insurance) provides financial protection in the event an organization is hit by a cyberattack. According to IBM’s Cost of a Data Breach Report 2023, more than 550 organizations experienced a data breach last year, costing them an average of USD 4.45 million.
Based on findings from Forrester’s The State Of Cyber Insurance 2023 report, only 26% of organizations surveyed had a standalone cyber insurance policy. Many falsely believe that cyberattacks are covered under their general liability insurance. However, most general liability insurance policies cover bodily injuries and property damage resulting from an organization’s products, services or operations; cyberattacks are often excluded.
As AI continues to heighten the cyberthreat landscape, organizations—small and large—must take proactive measures to ensure their protection.
In this article, we define cybersecurity insurance, explore its evolution, discuss the benefits associated with cybersecurity insurance, and why your organization needs it.
The Evolution of Cybersecurity Insurance
Cybersecurity insurance was an answer to the liability associated with cyberthreats. As the Internet became more widely adopted in the ‘90s, companies began to recognize the risks associated with online operations. Traditional insurance policies didn’t explicitly cover cyber risks, resulting in a gap in coverage.
As an industry, cyber insurance grew from USD 9.73 billion in 2021 to USD 11.75 billion in 2022, with further increases seen in 2023 and beyond. It reflected a compound annual growth rate (CAGR) of 20.7% over the past two years. However, cyber insurance companies are reluctant to offer claims or accept insurance proposals from companies for various reasons.
Reasons organizations commonly get denied cybersecurity insurance include, but are not limited to:
- The inability to demonstrate appropriate security measures
- A lack of proven preventative measures
- Non-compliance
- Being in a high-risk industry
- A lack of an incident response plan
- A history of data breaches
Rising Cyberthreats and Data Breaches
In the last 20 years, we’ve seen the evolution of cyberattacks—from the ILOVEYOU virus that infected over 10 million Windows personal computers in May of 2000, to the estimated 2,200 cyberattacks that occur each month. As cyberattacks evolved, there was a need for cyber insurance to do the same.
Insurance companies began developing more comprehensive cyber insurance policies that covered a range of cyber risks, including data breaches, business interruption, and network damage. Additionally, risk assessment and underwriting models evolved to better understand and quantify these risks.
In recent years, the landscape of cyber threats and data breaches has undergone a profound evolution, presenting unprecedented challenges to organizations and individuals alike. One notable trend is the escalation in sophistication and frequency of cyberattacks orchestrated by malicious actors across the globe. The consequences of cyber threats and data breaches extend far beyond financial losses, encompassing reputational damage, legal ramifications, and potential harm to individuals’ privacy and safety.
In response to these evolving threats, the landscape of cyber insurance has also been compelled to evolve. Cyber insurance policies have become increasingly comprehensive, covering a range of costs associated with cyber incidents, including forensic investigations, legal expenses, notification costs, and even extortion payments related to ransomware attacks. Moreover, cyber insurance providers now offer proactive services such as risk assessments and incident response planning to help organizations strengthen their cybersecurity posture and mitigate risks effectively.
Cloud Adoption
The cybersecurity insurance industry boomed between 2016 and 2019 as business models began to shift to improve their e-commerce and digital capabilities. As more companies adopted public cloud infrastructures, it led to increased interconnectivity and data sharing across networks, expanding the attack surface for cyber threats.
With businesses relying on cloud services, cyber insurers faced the challenge of assessing the unique risks associated with cloud environments. Cloud providers store vast amounts of sensitive data, making them attractive targets for cybercriminals. Therefore, cyber insurance policies needed to evolve to address the specific risks associated with cloud data breaches, taking into account the potential impact on multiple organizations sharing the same cloud infrastructure.
Regulatory Changes
The regulatory landscape also played a crucial role in the evolution of cyber insurance. Global data protection laws were implemented and increased the importance of protecting sensitive information. In addition to internal risk, companies also faced legal and financial consequences for data breaches, further driving the demand for cyber insurance.
The introduction of Bill C-26 and Bill C-27, alongside the evolution of standards like PCI DSS 4.0, have underscored a growing acknowledgment of the shifting threat landscape and the need for enhanced measures to safeguard sensitive data and critical infrastructure. These legislative initiatives, akin to the European Union’s GDPR, have aimed to fortify individuals’ control over their personal data and impose mandates on organizations concerning data collection, processing, and retention. Additionally, there’s been a noticeable emphasis on bolstering supply chain security, with a mandate for increased transparency and accountability across supply chains to mitigate risks emanating from third-party vendors and service providers.
Cyber Insurance Today and Beyond
According to Fortune Business Insights, the global cyber insurance market size was valued at USD 16.66 billion in 2023 and is projected to reach USD 84.62 billion by 2030, exhibiting a compound annual growth rate (CAGR) of 26.1% during the forecast period. North America is expected to dominate the market during this period, growing at a CAGR of 25.4%. This regional growth is driven by increasing cyberattacks and the risk of data loss.
Here are a few takeaways from the report:
- The growing usage of cyber insurance solutions helps businesses reduce the risk of cyberthreats
- Standalone cyber insurance is likely to gain maximum segment share due to its comprehensive policy cover
- Tailored cyber insurance is anticipated to grow with the highest CAGR during the forecast period due to its availability of customized solutions for specific industries
Taking into account the evolution of cyber insurance and its projected growth, organizations can expect to see many benefits from investing in cyber insurance.
What Are the Benefits of Cyber Insurance?
Depending on your cyber insurance policy, you may be able to take advantage of the following types of coverage and support:
Data Breach Coverage
Cyber insurance typically covers the costs of a data breach, including the expenses related to notifying affected individuals, legal fees, public relations efforts, and regulatory fines.
Incident Response Assistance
Most states require companies to notify customers of a data breach involving personally identifiable information. Many cyber insurance policies include access to specialized incident response teams that can help organizations navigate the complexities of a cyberattack, notify those impacted, conduct forensic investigations, and implement effective remediation strategies.
Business Interruption Coverage
A ransomware attack occurs when malicious software is used to restrict access to a computer system or an organization’s data until the ransom is paid—often interrupting a business’ operations. Cyber insurance can help organizations recover lost income and any incurred expenses if an attack disrupts their operations.
Risk Management Services
Some cyber insurance policies offer proactive risk management services, such as vulnerability assessments, cybersecurity training, and guidance on improving security controls. These services are designed to help organizations enhance their cybersecurity posture.
Regulatory Compliance Support
Organizations that handle sensitive data, financial records, and individual health records are often required to have cyber insurance to meet regulations set forth at the state, federal, and sometimes international level. These sectors include healthcare, hospitality, retail, and government, among others. Cyber insurance may be used to cover fines and penalties imposed by regulatory authorities in the event of an attack.
Some organizations may decide that cyber insurance premiums are more costly than incident remediation. If it’s not mandated that they have cyber insurance, they have that choice. However, not having cyber insurance likely means not knowing what an incident will cost—in terms of finance, liability, and reputation—until after it occurs.
Why Your Organization Needs Cyber Insurance
If you’re on the fence about whether or not you should invest in cyber insurance, consider your duty of reasonable care. In cybersecurity, reasonable care refers to the standard of behavior expected of an organization to protect information systems and sensitive data from cyber threats. And, while you may not be required to hold a cyber insurance policy right now, it doesn’t mean you won’t be required in the near future.
Ever-Changing Compliance and Privacy Laws
New technologies continue to raise concerns about data privacy, and state lawmakers are beginning to address these concerns by implementing privacy laws. For example[2] , California, Colorado, Connecticut, Utah, and Virginia have enacted data privacy laws to protect consumers. These laws also require commercial websites to post privacy policies regarding their use of consumer data. Other states—like Maine, Minnesota, and Nevada—have begun to follow suit, enacting laws regarding the privacy of personal information held by internet service providers.
Data privacy laws have a significant impact on businesses, as they govern how organizations collect, process, store, and share personal information. Compliance with these laws is crucial for maintaining the trust of customers, avoiding legal consequences, and safeguarding sensitive data.
In the past, it may have been enough to install antivirus software on employees’ computers. But now, as technology has evolved, organizations must be proactive in enhancing their cybersecurity posture. Of the more than 550 organizations included in IBM’s Cost of a Data Breach Report 2023 , 51% are planning to increase security investments as a result of a breach.
Cybersecurity Means Being Proactive
It’s important to note that cyber insurance doesn’t equate to cybersecurity, and many cyber insurance policies require you to take certain measures to protect your business from potential threats. If you’re unsure where to start, cybersecurity professionals can help.
To identify and eliminate potential security vulnerabilities, cybersecurity professionals use a variety of techniques, including:
- Threat modeling
- Code reviews
- Security testing
- Vulnerability scanning
- Security training and education
- Secure development lifecycle (SDL)
- Patch management
- Penetration testing
By partnering with a cybersecurity professional, organizations bolster their defenses against potential threats and ensure they meet the requirements for cyber insurance.
Conclusion
Packetlabs is a North American SOC 2 Type II certified penetration testing company that partners with organizations to safeguard digital spaces. We see first-hand the importance of enforcing iron-clad cybersecurity year-round.
Founded in 2002, we at Packetlabs have built our reputation on going beyond the standard pentest: instead, we deliver 360-degree solutions, 95% manual testing, and a 100% commitment to actionable results.
By partnering with a Pen Testing as a Service company like Packetlabs, you demonstrate to insurers that you know how worthwhile an investment security is—and that they won’t be risking their funds to keep you and your assets protected.
Ready to enhance your cybersecurity defenses? Get a free quote today.