The professional services industry has for a long time maintained a strong relationship with Professional Liability insurance coverage. The relationship makes sense, as Professional Liability helps mitigate the principal risk associated with the industry, namely, the potential for providing inaccurate advice, faulty products or services that do not meet expectations. Given that the service sector is by far the largest in the US, employing over 120 million people, one might expect that few other risks would command as much attention.
Times are changing, however. Where once most customer data was secured either in a physical format or maintained locally on computers with no outside access, many businesses now keep customer information on Internet-connected servers. Whether those servers are in-house or in the cloud, that customer data is now far more exposed to theft and loss than ever before.
The key issue here is both in cyber crimes, such as ransomware, and in system failures that can lead to damaging data losses. Through federal law, such as HIPAA, some service sector industries are required to maintain a high level of data protections. But this is not true for every business. Furthermore, even having protections in place does not prevent the high costs that immediately result after sensitive customer data is lost or stolen.
The Importance of Cyber Liability Insurance
When the WannaCry ransomware started infecting computers across the world in May, it was a bit of a wake-up call for many businesses. The malware was particularly virulent due to its incorporation of hacking tools created by the US National Security Agency. While the virus was ultimately thwarted on several fronts, the damage was done. The problem was not so much in how much money it was able to grift from businesses and organizations for its creators, but in how effective it was in taking advantage of unexpected vulnerabilities.
According to the Breach Level Index, there were over 1,700 data breaches in 2016, with over 1.3 billion personal records stolen. The site also notes that, since 2014, in only 4% of breaches where encrypting ransomware was used was the data recovered. Losses for unsuspecting and unprepared businesses are enormous and growing. According to a 2016 Rand study, the average data breach will cost businesses $200,000. Although the number from Rand is a far cry from the oft-cited Ponemon 2015 study that places the average loss figure at over $1 million, even a hit on the low end could be damaging for a business.
Despite the numerous headlines, it’s not just large, multi-national corporations that are at risk. Small Business Trends found that almost half (43%) of data breaches are against small businesses. They also discovered that a startling 60% of small businesses that are hit with a data breach go out of business within 6 months. Meanwhile, a Wells Fargo survey of middle market companies found that 44% of those with Cyber Liability insurance had already filed a claim, continuing to hint at the prevalence of cyber attacks against small and mid-sized companies.
What Does Cyber Liability Coverage Provide?
Cyber Liability insurance is designed to mitigate the most 21st century risk to businesses that one can imagine. As more data goes digital, physical theft and property damage are less and less of a concern. In a 21st century marketplace, data is the most valuable asset for most service-sector businesses. That does not just mean the cost of proprietary data many companies now rely on, but the cost of recovery after losing customer data, to include the hit a business takes to its reputation.
As with most other forms of insurance, what is covered in a policy will vary from business to business. In general, however, Cyber Liability is designed to help cover the costs of recovering from a loss, including business interruption expenses, mandatory reporting, and the cost of investigating the breach. Businesses can have some different security-related liability concerns written into the policy as well, such as cyber terrorism and the increasingly troublesome cyber extortion.
Simply put, any professional services business is remiss to ignore the increasing need for cyber liability insurance. Ignoring the need for protection against cyber threats is a dangerous gamble.
Maxime Rieman is Director of Product Marketing at CoverWallet. Educating and assisting shoppers about financial products has been Rieman's focus, which led her to joining CoverWallet, a startup dedicated to simplifying insurance for small businesses.
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