One of a company’s most valuable assets is its data. Some of this data may be highly sensitive, which requires additional levels of protection to prevent unauthorized access and loss. From intellectual property to customer payment data, handling sensitive content puts your organization at risk of data loss.
On a global scale, 64% of companies have experienced at least one instance of cyberattack. These incidents are highly disruptive to business operations, impacting a company’s reputation and bottom line.
To protect themselves and their customers, many businesses look to various forms of cyber insurance. Policies and coverage vary between insurers, but they are designed to help a business recover from the financial burden and other damages caused by cybersecurity incidents.
In this article, we will explain various types of data loss insurance and how they work, why you need this type of cybersecurity coverage, and how data loss insurance fits into a successful cybersecurity plan.
What does data loss insurance entail?
While a company may already have commercial property and general liability insurance, these policies typically do not apply to electronic data or cyber liability. Cyber insurance addresses the security risks inherent in digital technologies, including breaches, hacking, ransomware, viruses, and system failures.
Data loss insurance covers business losses due to cyberattacks in which data is lost or stolen. It is intended to reduce the impact of data loss caused by data breaches and other cyberattacks, as well as cover the costs of subsequent legal action taken against the insured company.
These policies can provide coverage in multiple scenarios, such as:
- Your company is hacked, and customers’ personal data is stolen. In response to this violation of privacy, your customers file suit against your business. Data loss insurance can help pay for any legal expenses necessary to defend the organization in court. This includes attorney’s fees, court costs, judgments, damages, and settlements.
- Malware affects the company network, giving malicious actors access to financial records including credit card information. The fines and penalties imposed on your company by the Payment Card Industry Data Security Standard (PCI DSS) can be substantial, varying from $5,000–100,000 per month. Data loss insurance helps companies cover these assessments, fines, and penalties.
- Cybercriminals infiltrate your datacenter and encrypt the data held on its systems. Data loss insurance can help not only pay the ransom to retrieve the data, but also provide compensation for income loss caused by the cyberattack.
Following a data breach, companies may be required to notify affected individuals, hire consultants to conduct breach analysis, and invest in advertising and PR to mitigate reputational damage. A data loss insurance policy helps pay for the costs associated with responding to and recovering from a data breach. For example, some states require businesses to provide up to 12 months of identity theft protection and credit monitoring to people affected by the data breach.
Why businesses need data loss insurance
Data loss insurance covers two important considerations: first-party damages and third-party liability. The first party is the insured company, and the third party is any individual or entity whose information the company has in its systems in the form of data.First-party damage coverage
First-party damages directly impact the business. For example, if a malware infection causes three days of downtime, the financial losses incurred are first-party damage to your company. If the cyberattack also led to a breach of sensitive data, the cost to notify the affected individuals would also be a first-party damage. In both instances, data loss insurance would reimburse the organization for the damages.Third-party damage coverage
If a cybersecurity incident causes damage to individuals outside the organization, this creates third-party liability. Should these third parties claim that your company failed to properly protect their data, they might file suit against you. Data loss insurance covers the cost of defending against such lawsuits.
Without data loss coverage, businesses that experience an adverse cybersecurity incident could be left financially responsible for the costs related to cyber damages. This is precisely what happened to Sony’s PlayStation network when it was breached by hackers. The breach exposed the PII of 77 million users and led to a 23-day service outage.
The gaming organization incurred more than $171 million in breach-related costs. However, they did not have any form of cyber insurance, so a court ruled that its insurance policy only covered damage to physical property. This means that costs attributed to responding to and recovering from the hacking event fell solely on the affected company.
Benefits of data loss insurance
Your data security policy is only as strong as its weakest component. It may not be possible to completely eliminate risk, but companies are increasingly emphasizing the importance of scaled detection and measured response.
Data loss insurance is a component of becoming resilient in terms of cybersecurity. Not being prepared for the possibility of data loss creates vulnerability. For example, in 93% of cases, malicious actors can infiltrate a company’s network and access valuable data and resources. Once inside, they can launch a host of intrusive attacks:
- Ransomware. Ransomware exploits vulnerabilities in servers or other devices connected to the corporate network. The most prominent type of malware is ransomware and is designed to encrypt important files, rendering them unusable. To restore the locked files, the affected business would need to pay the attacker’s ransom fee.
- Distributed Denial-of-Service (DDoS) attack. A DDoS attack uses numerous compromised computer systems to overwhelm its target, such as a website, server, or other network resource. By flooding the target with connection requests, messages, or malformed packets, a DDoS attack can crash the system and deny service to legitimate users.
- Structured Query Language (SQL) injection attack. SQL is a programming language used to manage relational databases. A SQL injection (SQLi) manipulates the code so that the attacker can access the database and its resources, including sensitive data.
Sometimes, the threat of data loss arises within the organization itself. For example, over a third of cybersecurity incidents involve phishing, which tricks victims into installing malware or sharing private information.
Around 78% of IT leaders believe that employees have caused accidental data breaches. Whether they are sharing unencrypted data files or working on unsecured networks, employee errors have caused major service outages in almost 40% of businesses.
Data loss coverage ensures that companies can recover effectively from cyberattacks, unintentional data leaks, and everything in between.
Components of a successful cybersecurity plan
Cybersecurity is more than protecting data and systems against malicious actors—a complete cybersecurity plan includes defending against downtime, operational disruption, and revenue loss. Legal fees resulting from cyberattacks can add up quickly, and data loss insurance policies help organizations cover those fees.
While data loss insurance will cover business losses from cyber threats, the best scenario is to avoid data loss altogether. To protect critical data, many organizations leverage WinZip® Enterprise for streamlined data management. This comprehensive solution can be used to manage, share, compress, and encrypt data files to keep sensitive information safe.
WinZip Enterprise enhances your organization’s comprehensive cybersecurity position with centralized control tools that enable IT admins to set up and enforce security standards. It is also compatible with a wide range of enterprise-grade cloud file sharing and file storage platforms, ensuring data is protected no matter where it is located.Find out how WinZip Enterprise fits into a successful cybersecurity plan, including data loss insurance.