Insurance for Cybersecurity: Everything You Need to Know About Cyber Insurance

No data security can ever be perfect. 

Any good cryptographer will tell you that even the best cyber defense is only as good as the skill, resources, and determination of those who want to compromise your network. 

The reality is that cybersecurity is an arms race, and the newest and strongest attacks and defenses are always in flux.

What this means for your business is that risk is an insoluble factor. 

The only sure defense against risk in any form is quality insurance coverage. 

Like any other type of insurance, cyber insurance protects against harm that cannot be prevented by other means. 

The key to any complete cybersecurity plan is to have the right cyber insurance for your organization’s unique data security needs.


Risk Types Cyber Insurance Can Protect Against

  • Identity Theft
  • Breaches of Personal Data
  • Damage Resulting from Cyber Attacks
  • Internet Fraud
  • Cyber Extortion
  • Cyber Bullying
  • Operating System Attacks

It's important to understand that cyber insurance does not stop attackers from gaining access to and compromising your data. 

What it offers is financial coverage for the losses and harm that can result from a successful attack. 

With that in mind, let's take a closer look at what cyber insurance is and what it can do.


Cybersecurity Insurance At A Glance

Cybersecurity insurance: Financial coverage for cyber liability and compromised data.

Who should have it: Anyone who handles or stores information, customer data, or the data of business partners should have cybersecurity insurance as part of their data security guarantee. 

This includes:

  • Companies that store critical data online
  • Any business with a substantial customer base
  • Any business with valuable digital assets or high revenues

What it Covers: Cybersecurity insurance can cover the cost of a data breach, legal liability defense, and the cost of notifying customers about threats and known attacks.

Unexpected Costs: You may owe damages should you be found liable for losses suffered by partners or customers while interacting with your business.


Types Of Insurance Coverage For Cybersecurity

Because you run a business, there are two types of victims of cybercrime:

  1. The first category of victim includes you, your employees, and your assets. 
  2. The second category includes your clients, customers, and partners. 

For all of these potential loss types, we have two types of cyber insurance: First-party coverage and Third-party coverage.

First-party coverage: This type of insurance covers damage to your own data, your networks, and other pieces of information belonging to your organization. 

Successful first-party attacks can damage your ability to do business.


  • Forensic investigations: The cost of identifying sources, causes, and attack types
  • Breach legal counsel: Legal counsel on how to maintain regulatory compliance
  • Notifications: Organizations liable for damages caused by attacks must notify the victims
  • Victim credit monitoring: Some states require responsible parties to monitor the credit of compromised parties
  • Cyber extortion: The cost of attacks involving ransomware can be covered
  • Data recovery, business interruption, and loss of revenue: General cyber attack loss types will be covered depending on the language of your policy

Third-party coverage: This type of coverage is there to protect you against lawsuits when your organization is held liable for an attack on data belonging to your customers, clients, or business partners. 

In an instance where your failure to protect a third-party leads to a lawsuit, not having coverage in place can weaken your case, leading to stiffer penalties.


  • Network security and privacy liability: Protection for insured third parties
  • Regulatory liability: Coverage for the cost of legal expenses related to compliance
  • PCI Fines: Coverage for Payment Card Industry data security fines
  • Regulatory fines and penalties: Coverage for fines for failure to adhere to regulatory compliance 

In some cases, an organization will use only one of these two insurance types. 

Naturally, this leaves a huge area of vulnerability. 

Due to the transactional nature of any business, you need to protect your own digital assets as well as those of anyone you do business with. 

A loss taken to your assets could put you out of operation indefinitely. 

But a lawsuit from an unprotected third party could be financially crippling to your organization.

Further, failure to bear the responsibility of a successful third-party attack may damage your reputation, and that type of harm can be impossible to recover from.


What Are The 4 Insuring Agreements?

An insuring agreement is part of a policy in which the insurer claims responsibility for the deliverance of payment or coverage to the insured in the event that a given form of harm is realized. 

In cyber insurance, there are four general types of insuring agreements:

  • Network security and privacy liability
  • Network business interruption
  • Media liability
  • Errors and omissions


Network Security and Privacy Liability

This agreement type comes with the promise to cover harm, damage, or the compromise of the security of a network and/or privacy.


Network Business Interruption

In instances where an attack renders a business inoperable, this type of agreement includes a promise to cover losses generated during the period of productivity loss.


Media Liability

This type of agreement can cover damage to storage devices such as hard drives, disks, assets, network storage, and more.


Errors & Omissions

This type of agreement protects against claims of negligent actions or insufficient work.


How Much Cyber Insurance Do I Need?

The short answer to this question is that you need an amount of coverage equal to or greater than the losses you will sustain in a cyber attack. 

Of course, there is no telling what kind of attack will hit your business and how much it will cost you. 

The way to decide on a reasonable amount of coverage is to know what attacks you are likely to suffer and what their average to maximum damage potential might be.

According to IBM, the average cost for a data breach in the U.S. is $4.3 million. 

This may seem like an odd number, especially considering the fact that most businesses are not worth $4 million. 

According to Forbes, the average cost is $1.8 million. 

So, the answer depends on who you ask.

A smaller private cybersecurity firm claims that the median cost of a data breach is somewhere between $78,000 and $200,000. 

In our opinion, numbers like these are more reflective of the risks that small to medium-sized businesses can expect. 

Certainly, that is more than enough to cripple most small businesses.

The three most commonly used ways to determine the amount of insurance you should buy are as follows;

  1. Use a data breach cost calculator
  2. Review insurance benchmarks
  3. Know your budget


Data Breach Calculator

Tools like these will take all of the pertinent factors of your case and match them to known common monetary outcomes of cyber attack-related losses. 

These can be a decent guide, but they will tend to be geared toward motivating you to make a purchase.


Insurance Benchmarks

There are a few resources out there listing insurance benchmarks that can give you a good idea of the costs you are likely to sustain in an attack. 

These will tend to be rather crude, and the ones that show up first will again tend to be meant to compel you to make a purchase.


Your Budget

Of the three accepted ways to budget for these things, your capacity to afford coverage may be your best indicator of how much insurance to buy. 

This type of thinking presumes that you should get as much insurance as possible, which may indeed be the case. 

Simply project your earnings and expenses out for at least one year and decide from there how much you can afford to spend on cyber insurance each month. 

This is the amount you should spend.

Another way to find out how much you really should spend is to ask an expert in cybersecurity insurance. 

You should talk to someone who understands information security, what hackers and malware are capable of, and what viable defenses exist. 

Your consultant should also understand the costs of successful attacks to advise you in a meaningful way.


Cyber Insurance Policy Limits

Cyber insurance can’t cover:

  • Intellectual property: company logos, creative writing, artwork
  • Damaged property: damaged hardware
  • Self-inflicted harm: insider attacks, employee theft, and damage caused by failure to adhere to best practices are not covered
  • The cost of proactive measures: money invested in cybersecurity prior to a successful attack is not generally covered

All of these types of damage are best covered with other, more appropriate forms of coverage. 

Theft by employees, for example, falls under self-inflicted harm and is usually covered by commercial crime policies. 

Intellectual property losses are considered to be too nebulous to be covered by this type of insurance. 

Property damage is usually covered by policies designed to protect commercial property.

Culture-based attacks also can’t be covered by cyber insurance. 

These attacks happen when a bad actor uses deception to trick an employee into giving up passwords, account names, personal information, and more. 

Strictly speaking, these are not cyber attacks at all. 

Rather, they are culture-based attacks meant to gain access to a network. 

Guarding against these attacks can only be done through team training and vigilance.

In short, cybersecurity insurance is meant to be used in addition to other types of business coverage. 

In this way, this specialized form of coverage will be ready and available for the specific types of harm they are meant to cover, leaving your commercial crime and other business insurance in place specifically when and where they are needed.

The best way to ensure you get the most out of your cybersecurity insurance is to set up a policy designed to protect you against the types of cyber attacks to which your organization is most vulnerable. 

According to Forbes, the following types of attacks are the most common. 

They are listed in order of most to least common.

10 Most Common Cyber Attacks in 2023

  1. Malware
  2. Denial of Service (DOS)
  3. Phishing
  4. Spoofing
  5. Identity Attacks
  6. Code-Based Attacks
  7. Supply Chain Attacks
  8. Insider Attacks
  9. DNS Tunneling
  10. Internet-of-Things-Based Attacks


Cyber Risk Management And Insurance For Cybersecurity

Finally, it's important to understand that cyber insurance is only part of a complete data security risk management plan. 

Your first defense is quality data protection tools like a virtual private network, anti-malware, password storage and encryption, and other network security tools.

On top of this, robust team security awareness training is necessary to guard against cultural attacks. 

Your team needs to understand the importance of vigilance when it comes to protecting passwords, personal data, and sensitive company information.

Finally, cybersecurity insurance is there because even the best cybersecurity can never be fully invulnerable to attack. 

It is there as a final fail-safe backup when an attacker does find a weakness, and the history of data security has proven that they can and will find a weakness.



Cyber insurance is there to back you up when all else fails. 

In the world of hackers, viruses, scammers, and malware, cybersecurity insurance stands outside your digital information network ready to guard against the damage done by a successful attack.

Just as with anything in life, data security is inherently risky. 

The best data security experts know only a good insurance policy can keep your business up and running when a new and powerful cyber attack targets your network.

Get in touch today to learn more, and find out what form of cybersecurity insurance is best for your business.

Take this 5-question quiz to find out how prepared your business is for a cybersecurity incident

Read On