Does Your Small Business Need Cyber Insurance?

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As a small business owner, insurance probably isn’t your first priority. The number of products available can be overwhelming, and you can certainly think of other ways to spend your profits. However, high-profile data breaches like Target and Neiman Marcus should convince every entrepreneur that cyber security is worth considering, even if you run a one-person operation.

Insurance companies are recognizing the new threats and offering policies protecting digital property, and small businesses can be good candidates. Almost a third of cyber-attacks are aimed at them, but most have little to no protection – or even a written policy – about data security. Could your business benefit from cyber insurance?

What is Cyber Insurance?

Cyber insurance policies generally both safeguard against viruses and hacking, and step in if a breach does occur. Some may also cover liability for Web content. Protections can include:

  • Help Mitigating Risk. If you run a small business, you may not have time to adequately manage your web security. Policies may provide periodic reviews and other assistance.
  • Reimbursement for Fees and Penalties. Insurance benefits could reimburse you for additional staff you hire to recover from a cyber-attack, paperwork or filing fees, or other related costs.
  • Business Interruption Protection. The smaller your business, the more income you lose if you’re temporarily sidelined. Cyber insurance can offset losses.
  • Legal Aid. Hopefully a data breach wouldn’t result in legal action, but if it did, your plan could help find expert counsel, as well as cover legal fees and judgments against you.

Business owners should note that standard business liability policies don’t offer these special protections, and in many cases, specifically exclude cyber threat coverage. Some older policies may be more inclusive, but the only way to be sure is a close read of your policy and a chat with an agent.

Who Needs Cyber Insurance?

The more business you transact online, the more likely you are to experience a serious, disabling breach. Obviously, for some businesses, like banks and hospitals, the consequences of these breaches are more serious and wide-reaching than others. Still, if you have any kind of online store – even if it’s a small supplement to a brick-and-mortar operation – or you store any customer or employee data on a network, you should probably consider some level of protection.

It may come as a surprise, but smaller businesses can suffer more damaging consequences from data breaches than larger ones, especially when it comes to business interruption. In addition, there may be fewer employees to handle the fall-out. While the premiums will take a bigger chunk out of your bottom line, they may also benefit you more.

Where Can You Buy Cyber Insurance?

Once a niche product, cyber insurance is increasingly available as an add-on to big name companies’ business policies. Insurers like Allstate, Nationwide and Traveler’s, to name a few, all have coverage options. AIG made news recently by adding property damage and bodily injury coverage to its policies. Smaller insurers are also getting in on the action, so no matter what company you work with, it’s possible they already offer coverage.

As the field develops, small business owners will have a much greater variety of policies and protections to choose from – and much lower costs. But if you store a large amount of personal data, your premiums could still be pricey. Making sure your security procedures are as strong as possible before applying – for example, by using unique, frequently changed passwords and limiting the number of employees who can access secure data – could lower your costs.

What is the Future of Cyber Insurance?

Currently, cyber insurance policies are typically aimed at businesses, but it’s easy to see the potential applications for person insurance, too. Many individuals maintain personal websites or online address books that could be hacked like a customer database. While major companies like State Farm and GEICO have been slow to develop personal policies for these types of risks, many do provide inexpensive identity theft coverage. These plans often provide reimbursement for fees to correct any breaches, and more sophisticated coverage is sure to follow.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Personal Finance , Small Business , Business , Insurance

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