As we welcome in 2016, awareness of the variety of information-related risks confronting today’s enterprises, and the availability of insurance covering those risks, is at an all-time high. High-profile data breaches caused by hackers and negligent or non-compliant employees, ransomware attacks, and social engineering scams have motivated many companies to transfer some of their cyber risks with cyber insurance. But companies that also take steps to better manage their information assets not only improve their cyber risk profile; they also put themselves in a better position to secure more favorable cyber insurance coverage terms and rates.
What Is Cyber Insurance?
Cyber insurance is a relatively new and still evolving form of coverage designed to address the emerging information-related risks facing today’s companies. These risks include breach of privacy, failed network security, and media liability. Unlike more traditional forms of coverage, there are no standard cyber insurance policy forms, provisions, definitions, or exclusions.
First-party coverage under a cyber policy can be triggered by a variety of events that have become far too familiar to modern enterprises, including the malicious destruction of data, accidental damage to data, power surges, IT system failure, cyber extortion, viruses, and malware. Typical first-party coverages include legal and forensic services to determine whether a breach occurred and, if it has, to assist with regulatory compliance, costs to notify affected employees and/or third parties, network and business interruption costs, damage to digital data, repair of the insured’s reputation, and payment of ransom costs. Third-party coverage is available for legal defense costs, settlements, regulatory fines, and damages incurred after a cyber incident.
Cyber insurance typically provides for the retention of an attorney – a “breach coach” – to coordinate the insured’s response to a cyber incident. An experienced coach can build an effective team of specialists – basically, a cyber swat team – and efficiently guide the company through the forensic, regulatory, public relations, and legal issues that arise from a security incident. Given the complexities of the various laws pertaining to data breach notification, as well as the focus paid by regulators, the media, and the plaintiffs’ bar to data breaches, coverage for the retention of a skilled breach coach is perhaps the greatest benefit of cyber insurance.
Relying on a coach who has “been there and done that,” who knows the law and regulations, and who has relationships and credibility with the relevant regulators and law enforcement officials can help an enterprise successfully emerge from a cyber incident and avoid potentially catastrophic financial and reputational damage.
What Do Cyber Insurers Want to Know about Prospective Insureds?
Although there are no standard cyber insurance applications, cyber insurers generally, and rightly, focus on a prospective insured’s Information Governance policies and practices in the application process in order to decide whether or not to offer coverage, in what amount, and at what premium. Cyber insurers typically inquire into the following areas:
- The volume and types of data (e.g., credit card data, banking records, protected health information) handled or maintained by the company;
- The existence of written, attorney-approved, and updated policies and procedures concerning the handling of information;
- The company’s compliance with security standards and regulations, and the frequency of assessments;
- Any existing network security programs, including the use of firewalls, antivirus software, and network intrusion testing;
- Whether or not the company employs a chief information officer, chief privacy officer, or chief technology officer;
- The company’s history of security incidents and breaches, including how long it took to detect any prior breach (particularly relevant if business interruption coverage is desired);
- Whether or not there have been prior threats to disable the company’s network or website;
- If the prospective insured is aware of any facts or circumstances that reasonably could give rise to a claim under a prospective cyber policy;
- Whether or not another cyber insurer cancelled or refused to renew a cyber policy;
- The company’s security budget (is it part of the IT budget and, if so, what percentage?);
- The company’s existing practices concerning data encryption, passwords, patching, and system access control;
- The company’s policies and practices around employee hiring, training and awareness programs, and procedures at termination;
- The physical security controls (e.g., access cards) utilized by the prospective insured;
- Whether or not the company conducts audits of third-party service providers;
- The company’s practices with regard to vendor contracts and policies;
- Whether or not the company has and enforces policies governing mobile devices and social media; and
- The prospective insured’s data backup procedures.
Many cyber insurance applications read like an Information Governance checklist and require companies to take a close look at how they’re managing their information assets throughout their entire lifecycle.
Good Information Governance policies and practices fit hand in glove with obtaining optimal cyber insurance coverage. Companies that get their information house in order and protect themselves with cyber insurance are in the best position to maximize the value of their data while mitigating their information-related risks.