The Most Overlooked Small Business Coverages and How They Protect You During a Cyber Event

Cyber criminals come in all shapes and sizes — and from any number of demographic backgrounds.

But what they’re looking for is simple: Access to personal information and data they can use for malicious purposes — to extort payment, infect computers with malware, and other fraudulent purposes such as identity theft and for financial gain.

According to Jeff Kroeger, executive vice president of strategy and development, Insureon, all businesses, no matter the size, have cyber liability risks.

“When people think of cyber risk, they tend to think of the extravagant data breaches and hacks. I know of no business that does not have some type of personally identifiable information (PII) on its customers, which could be as small as a name and phone number,” he said.

“For a small business owner, the risk is real and frankly, all businesses have the responsibility to protect customers’ information.”

Finding the Right Level of Insurance

Insurance coverage for a cyber event is one area that Kroeger said small business owners might not be giving enough attention to.

“From the data privacy and protection aspect, personally identifiable information, like cyber risk, you would want to educate the consumer on what is at risk relative to first and third party,” Kroeger said.

“It’s one thing to have first-party exposure with your own employees and your own business. But if you are exposing your customer’s information, that’s third party,” he added.

“There are lots of products today in the market where an insurance carrier will throw on $10,000 or even $50,000 or more of coverage on first party, which is great, but your exposure is really in third.”

Small Businesses at Risk

Mario Paez, director, cyber & technology E&O, Marsh & McLennan Agency referred to the 2019 NetDiligence Cyber Claims Study, which assesses actual paid claims by the cyber insurance marketplace. According to that study, 96% of claims are attributed to the SME (under $2B in revenue), so the risk is real and impacting smaller organizations.

“Small businesses, as opposed to large organizations, often do not have the operating budgets to build a robust cyber security framework to prepare, plan and respond to security infiltrations, privacy incidents or network outages for example,” Paez said.

“These organizations are often reliant on third-party managed IT service providers and may not fully know the connectedness with these organizations, the extent of data shared with those vendors nor the responsibility of those vendors to notify and cooperate or to be audited by the client.”

And while vendor risk management and contract due diligence is key, it is important to note that third-party vendors can introduce vulnerabilities that may impact small businesses’ network reliability as well as impact their responsibility after a vendor-caused security/privacy incident.

“Small businesses may not have the comprehensive incident response plans and availability of resources to respond and that is a key area where cyber liability insurance can assist in providing 24/7 incident response,” Paez said.

“Not to mention, the defense and indemnification expense coverage is important to protect the organizations balance sheet if third-party plaintiffs and regulators may further assert financial injury stemming from a cyber incident.”

What Are the Severe Risks?

Timothy Zeilman, Hartford Steam Boiler vice president, global cyber products, said cyber insurance can be added as an endorsement to a businessowner’s policy to provide coverage that responds to what he sees as the most frequent and severe risks small businesses face: cyber attack, ransomware, business interruption, and data breach.

“We have seen increasing demands for ransom, in some cases as much as a 200% quarter-over-quarter increase, and business interruption from ransomware attacks ranging from a few days to over two weeks,” Zeilman said. “For small businesses, that can be a business-ending event.”

Indeed, as Paez explained, it is not uncommon for small businesses to go out of business due to a network security/privacy incident.

An outage of a network caused by malware could create a significant business interruption — cutting off revenue streams and misdirect revenue-producing resources to mitigate the cyber threat.

“In addition, the cost to hire a forensic and remediation firm and legal response team can add to the costs further crippling a small business’ balance sheet,” Paez said. “Reputational harm and lost customers stemming from the operational downtime can also be detrimental to a small businesses continuation.”

Protecting Your Business

Small businesses can purchase a stand-alone cyber policy or a cyber endorsement, usually in the form of a businessowner’s policy endorsement.

To further protect themselves, Zeilman recommends small businesses:

• Develop a written cyber security plan (that includes a password policy) and an incident response plan. Identify resources in advance that you’ll call upon in the event of a cyber incident.
• Assess their cyber risks regularly. That means not only doing a mental checklist of assets and information, but calling on expert resources to conduct risk assessments and test the security on a regular basis.
• Regularly update software and install patches.
• Purchase cyber insurance that addresses risks that a particular company faces and has sufficient limits to cover estimated potential losses.

The second policy that Kroeger thinks small business owners ignore at their peril are umbrella policies.

“The second piece going to umbrella is not going to data privacy necessarily but the basis of insurance, and that’s bodily injury and property damage and the extensions over the insurance on your base policy,” Kroeger said.

“Base policy limits are really high, they seem high when you talk to somebody about a million or two million on a single occurrence or two to four million on an aggregate limit basis. That sounds like a lot until you have one special event that’s ten million, six million dollars of which could be uncovered,” Kroeger said.

“If you are a small business owner, you are out of business, when you could have spent an 30 extra dollars and been covered.” &