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What Is Cyber Insurance?

Cyber insurance can help pay your response costs and covered claims against your business after a cyber incident.

What Does Cyber Insurance Cover?

Your Business’s Own Costs

First-party coverage addresses the business’s own covered costs, such as breach response, data recovery and income lost during a covered interruption. 1

Claims Against the Business

Third-party coverage addresses covered claims against the business, including legal defense and settlements arising from a data breach. 1
ConcernWhat to identify in the quote
Responding to an incidentThe response services and costs addressed by the first-party section
Recovering dataThe proposed recovery coverage and applicable limit
Interrupted operationsThe income protection and event that triggers it
A claim against the businessThe liability coverage, defense arrangements and applicable limit
1 1 3

Who Needs Cyber Insurance?

Consider cyber coverage if you hold customer or employee data, rely on software to operate, or entrust important information to a service provider. 2

Coverage Examples

These are examples, not coverage guarantees. Your policy terms and the facts of the claim determine what is covered.

What happened

Customer Records Are Stolen

An attacker steals records from your customer database. You hire investigators, and affected customers demand compensation.

How coverage may help

First-party coverage may pay your response costs. Third-party coverage may pay to defend customer claims and settle covered losses. Both need to be included in your policy. 1,3

What happened

A Vendor Outage Stops Orders

A cyber incident takes down your hosted ordering system, leaving you unable to process sales.

How coverage may help

Interruption coverage may help replace lost income, but an incident at an outside vendor must meet the policy's terms. The trigger and any separate limit matter here. 1,3

How Do You Compare Coverage and Costs?

Limits and Retentions

A cyber policy can have an overall limit and smaller limits for particular costs. Compare the amounts for response, recovery, interruption and liability, along with what your business pays first. Two quotes with the same headline limit can leave you with different amounts available for the incident you're concerned about. 3

Response Services and Approval

Before an incident, check whom to contact, which response specialists you can use and when insurer approval is needed for spending. 3

If you already work with a technical or legal adviser, confirm whether you can use them under the policy and what approval they need. 3

What Exclusions and Conditions Should You Check?

Timing and Earlier Incidents

Ask what event triggers each coverage section and how prior incidents, reporting deadlines and retroactive dates affect a claim. 3

Vendors and Geographic Scope

Ask whether coverage extends to incidents involving vendors that hold your data and whether the geographic scope fits your operations. 1

How Does It Compare With Related Coverage?

Do not assume a cyber quote covers stolen money: ask separately about funds-transfer fraud and the crime coverage available for it. 3

What Do You Need for a Quote?

Systems, Data and Dependencies

Prepare an inventory of the systems, data and outside services your business relies on, and identify which operations would be disrupted if they became unavailable. 2

Security Controls and Response Planning

Be ready to explain your backups, access controls, software updates, staff training and incident-response plan. 2
PrepareHow to use it in the discussion
Systems, data and service inventoryIdentify what the business relies on and what an incident could interrupt.
Outside providers holding business dataDiscuss vendor-related coverage questions.
Backup and recovery arrangementsExplain how you would approach recovering affected data.
Access, update and training practicesDescribe the controls actually used by the business.
Incident-response plan and contactsCompare the plan with policy notice and approval processes.
2 2 3

Key Terms in Plain English

First-Party Coverage

Protection for your own covered costs, such as incident response, recovery or lost income. 1

Third-Party Coverage

Protection for covered claims that other people bring against your business. 1

A Policy Example to Compare

See Corgi's guide for an example of one provider's coverage terms and optional extensions.

Frequently Asked Questions

Does Cyber Insurance Cover Money Sent to a Fraudster?

Not automatically. Funds-transfer fraud and social engineering need explicit attention in the cyber and crime terms. 3

Can I Choose My Own Incident-Response Firm?

The policy may restrict your choice or require approval before you spend money. Confirm the response contacts and any preferred firm's eligibility before an incident. 3

What Is the Difference Between First-Party and Third-Party Cyber Insurance?

First-party protection addresses your business's covered costs, such as breach response, data recovery and lost income. Third-party protection addresses covered claims against the business, including defense and settlements arising from a breach. 1 1

Can Cyber Insurance Cover a Breach at a Vendor?

It can, but check whether the policy extends to incidents involving vendors that hold your data. Also confirm that its geographic scope fits where your business and its providers operate. 1

Which Insurance Providers Offer Cyber liability?

Sources

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Updated .

Sources checked .

Spot, a product of Tools for Enlightenment, publishes this research and works in the commercial insurance market. Editorial policy. To suggest a correction, contact Spot with the page URL and supporting source.

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