Cyber Insurance Business Interruption Coverage Explained

Cyber insurance business interruption coverage is a vital protection for businesses that can't operate due to a cyber attack. This type of coverage can help offset lost revenue and expenses.

Businesses that experience a cyber attack may face significant financial losses. According to a study, the average cost of a data breach is $3.92 million.

In some cases, a cyber attack can force a business to shut down temporarily. This can happen if a company's website or online services are taken offline due to a cyber attack.

Cyber attacks can cause significant business interruptions, leaving companies scrambling to recover. A cyber attack can cripple a business's ability to perform normal activities through malicious code, DDoS attacks, or viruses that delete critical information.

Many smaller businesses lack the resources to detect and fix cyber attacks, prolonging the interruption. Traditional commercial general liability policies won't cover business interruption losses due to cyber attacks.

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Cyber liability coverage can fill this void, providing protection for lost income, profits, operating expenses, and rented or leased equipment. This type of coverage is essential for businesses that rely heavily on digital systems.

A cyber attack can leave a business unable to operate, resulting in lost income and profits. It's essential to have cyber liability coverage to mitigate this risk.

Here's a list of what cyber liability coverage can help with:

Preventing and Mitigating Cyber Risks is crucial for businesses to avoid costly downtime. A formal, documented risk management plan is essential to address potential cyber threats, including a characterization of all systems used at the organization.

Regular cloud backups are a fundamental step in ensuring business continuity, with backups updated frequently and tested at least once a year. This can be achieved through manual backups stored on NAS devices or other methods.

Implementing robust IT teams, such as partnering with Managed Service Providers (MSPs), can be the difference between resolving system issues quickly and waiting days for operations to resume. Developing manual processes as contingency plans can also help prevent total shutdowns.

Here are some key tips to prevent a cyber attack from causing business interruption:

By following these tips and implementing robust risk mitigation strategies, businesses can reduce the risk of cyber attacks and minimize downtime.

Business interruption insurance has evolved rapidly, particularly with the rise of data breaches and cyber threats. This type of insurance used to be limited by defined perils, but now it's becoming more comprehensive and generous as carriers better understand cyber risk.

Ransomware events and cyber attacks are becoming more common, and hackers are now targeting business systems to cause costly interruptions rather than just stealing data. This can be detrimental to both small businesses and large corporations.

In fact, between 2020-2022, 20% of all organizations and 80% of all data center managers reported suffering a "serious" outage resulting in significant losses. This highlights the growing risk of IT service outages and the need for businesses to manage this risk.

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Cyber attacks can cripple a business's ability to perform normal activities in several ways, including:

These types of attacks can leave a business scrambling to do business, especially for smaller businesses that may not have the resources to detect and fix the problem quickly.

Implementing regular cloud backups is a fundamental step in ensuring business continuity when facing a system failure. These backups should be updated frequently and tested at least once a year to confirm reliability.

Having a skilled IT team can be the difference between resolving system issues quickly and having to wait days for operations to resume. Many organizations benefit from partnering with Managed Service Providers (MSPs) that can offer expertise and support in real time.

Developing manual processes as contingency plans can be invaluable. By training staff on these processes, companies can ensure a smoother transition during crises.

Creating a formal, documented risk management plan is crucial in addressing cyber-related disruptions. This plan should include a characterization of all systems used at the organization based on their functions, the data they store and process, and their importance to the organization.

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Here are some key elements of a robust risk mitigation strategy:

Incident response plans are becoming standard practice, and organizations should assess the impact of potential disruptions on third-party vendors and devise contingency plans accordingly.

Cyber insurance business interruption coverage is a type of insurance that helps businesses recover from financial losses resulting from disruptions in the operations of their suppliers, customers, or other key third-party entities.

This type of coverage is essential for today's businesses, as IT service outages are a significant risk that can cause substantial losses. In fact, between 2020-2022, 20% of all organizations and 80% of all data center managers reported suffering a "serious" outage resulting in significant losses.

Businesses in industries like finance, consulting, healthcare, and accounting are more highly dependent on technology and therefore more susceptible to outages and interruptions. However, risk exposure varies widely within industries, and each company must determine its individual risk level.

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Here are some common types of business interruption losses that cyber insurance policies can cover:

A waiting period is typically included in business interruption coverage, meaning a company is responsible for a period of system downtime before the insurance starts paying out. The waiting period can range from 8-12 hours, although some markets may offer lower waiting periods for an additional premium.

Businesses in industries like finance, consulting, healthcare, and accounting are more dependent on technology and therefore more susceptible to outages and interruptions.

These industries have a higher risk of IT outages, which can lead to significant losses. For example, in 2022, 60% of outages resulted in $100,000 or more in losses, and 15% resulted in $1 million or more.

On the other hand, industries like law, real estate, higher education, and construction face a slightly lower risk of IT outages.

However, risk exposure varies widely within industries, and each company must determine its individual risk.

Some industries have restrictions on CBI coverage, such as cannabis, adult entertainment, payment processing, and public K-12 education.

These restrictions can limit the number of policy options and terms available to companies in these industries.

Here's a rough breakdown of industries by their risk of IT outages:

Keep in mind that this is a general breakdown, and individual companies within each industry may have different risk levels.

Business interruption coverage can help your business recover from the financial damage caused by a cyber attack. Most traditional commercial general liability policies won't cover business interruption losses due to a cyber-attack event, but cyber liability coverage can fill that void.

Lost income, profits, operating expenses, and rented or leased equipment are all covered under cyber liability insurance. This type of coverage can help your business withstand any interruptions, even if you can't anticipate them.

Contingent business interruption (CBI) insurance, also known as dependent business interruption insurance, extends coverage to the indirect consequences of disruptions to external parties. This type of coverage is essential for businesses that rely on third-party vendors, suppliers, and technology providers.

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A cyber attack on a vendor can cause significant business interruption, as seen in the case of the Kaseya cyber attack, which affected a Swedish supermarket chain and caused it to shut down 800 stores for almost a week.

The risk of IT outages may be nearly universal, but the amount of risk skews differently across industries. Finance, consulting, healthcare, and accounting are more highly dependent on technology and therefore more susceptible to outages and interruptions.

To secure business interruption coverage, it's crucial to secure wording that triggers regardless of when the businesses insured discover the issue. Some insurers' policies have trigger wording like "substantial degradation" of systems, which leaves the burden of proof on the insured to convince the insurer of exactly how far back the attack began to substantially impact them.

Here are some key points to consider when selecting a business interruption coverage policy: