Cyber Liability Insurance
for IT Businesses, Consultants & Subcontractors

If there’s one group of people that can appreciate the importance of cyber security, it’s IT professionals. From credit card numbers to private health information to company secrets, digital information is a valuable and vulnerable target in today’s computerized world. However, you probably already know how difficult it is to stay ahead of emerging threats and keep a business 100 percent protected from data breaches. There’s no guarantee you’re completely safe.

It’s for this reason that Cyber Liability Insurance exists. Cyber Liability Insurance (also called Data Breach Insurance or Cyber Risk Insurance) can step in when a business's private information is stolen or compromised.

Because business and technology continue to merge, cyber liability is growing in terms of both frequency and cost. According to the Verizon 2015 Data Breach Investigations Report, in 2015, there were…

  • 79,790 security incidents.
  • 2,122 confirmed data breaches.

That’s up from about 63,000 incidents and almost 1,400 breaches in 2013.

And according to the National Small Business Association’s Year-End Economic Report [PDF], cyber attacks cost small businesses an average of $20,752 per attack in 2015, a dramatic increase from the $8,699 average of 2013.

These numbers point to a larger picture, one in which cyber liability is a major concern for businesses of any size and any type. But as a technology business, you face unique cyber liability challenges in your work. Luckily, Cyber Liability Insurance can help guard your business and your assets if a cyber criminal comes knocking at your digital door.

How Cyber Liability Insurance Works for IT Businesses

How Cyber Liability Insurance Works for IT Businesses

There are two types of Cyber Liability Insurance: first-party Cyber Liability and third-party Cyber Liability. IT professionals will likely want to consider acquiring third-party coverage, but let's take a look at both types.

First-party Cyber Liability Insurance is designed to help businesses address the high cost of a data breach. If protected information is compromised, a business can be responsible for expenses related to:

  • Notifying clients or customers about the breach.
  • Good-faith advertising or PR campaigns to restore their reputation.
  • Credit monitoring services for affected clients.
  • Cyber extortion demands.

This can all add up to a devastating figure depending on how large the breach is and what your state’s laws are. First-party Cyber Liability Insurance can help pay for those expenses, which allows you to respond to an incident quickly and potentially minimize the damage.

Third-party Cyber Liability Insurance, on the other hand, can kick in when one of your clients suffers a data breach and sues your firm to recover damages. Why would a client do that? Perhaps a cyber criminal exploits a bug or vulnerability in a program you wrote for the client. Maybe you advised the client to use a program with a known vulnerability. Perhaps the client just blames you and won’t listen to reason.

As you saw in the numbers above, the cost of a data breach can be extraordinary. That financial burden may give a client even more incentive to sue IT providers over their losses. When that happens, third-party Cyber Liability Insurance may help you pay for:

  • Attorney fees.
  • Court costs.
  • Settlements or judgments.

Keep in mind that for technology, web, and IT businesses, third-party Cyber Liability Insurance is usually bundled with Errors & Omissions Insurance because it acts in a similar fashion (i.e., both policies can provide coverage when someone accuses you of making errors in your work and causing them a loss). This may not always be the case, so be sure to ask your insurance agent if your E&O policy includes cyber coverage.

Carrying Cyber Liability Coverage Even When Your Clients Carry It

Carrying Cyber Liability Coverage Even When Your Clients Carry It

Though it may be a good idea to require all of your clients to carry first-party Cyber Liability Insurance, it’s no guarantee that your business won't face a lawsuit if one of them suffers a data breach. If their insurance is inadequate, don’t be surprised if that client sues you for everything the policy doesn’t cover. Third-party Cyber Liability Insurance may pay for those damages and help you make things right with your breached client.

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