Small businesses face potentially crushing computer liability risks when their customers' private information is stolen.
Consider: In 2014, the number of reported U.S. data breaches hit a record 783, with 85.6 million records exposed, according to the Insurance Information Institute. In the first half of 2015 -- the most recent figures available -- data breaches topped 400, with 117.6 million records exposed.
Nearly all businesses that use information technology to store data or provide services online are vulnerable, says Ryan Scruggs, a Farmers Insurance agent in Peoria, Ariz.
"If there is any way you service your customer electronically, you are at risk," Scruggs says. "If something were to occur because of your inability to protect them, then you would be held liable."
Cyber insurance appeals to small businesses because it’s expensive to invest in elaborate defenses against hackers, says Shay Zandani, CEO of Cytegic, a Tel Aviv-based cyber security risk management company.
"I don't believe you can be 100 percent protected," Zandani says. "This is why you have an insurance policy."
If you are found legally responsible for a security breach that costs your customers money, you could be left holding a bill for tens of thousands of dollars.
Says Scruggs, "A lot of small business owners don't realize that there could be consequences."
Cyber insurance for small business covers your risks
Policies vary, but these losses typically are covered by cyber liability business insurance policies:
- Preparing a legal defense against lawsuits that result from a data breach and paying for any monetary damages you must pay to customers, up to your policy limits.
- Repairing or replacing computer systems and replacing lost data following a cyber attack.
- Notifying your customers of a data breach.
- Paying any state or federal regulatory fines that result from a data breach.
- Temporarily closing your business to deal with cyber attack issues.
How much coverage you need depends on your exposure to potential losses, Scruggs says. A basic cyber liability policy for a small business through Farmers Insurance typically offers $50,000 in protection and costs about $500 per year.
Shop before you buy -- and check your security
Prices can vary from carrier to carrier, says Ashley M. Hunter, an insurance underwriter with HM Risk Group in Austin, Texas.
Cyber liability coverage can be sold as a stand-alone policy or as a rider to a Business Owners Policy. A BOP typically includes basic coverages required by business owners, such as property insurance, business interruption insurance, vehicle insurance and flood insurance.
The Insurance Information Institute has these suggestions for safeguarding your business:
- Hire an Internet technology security service to ensure you are protected.
- Regularly update your security software and hardware.
- Routinely back up data on a secure offsite location to make sure it can be retrieved.
Don't think your business is safe from attack
Small business owners sometimes make the mistake of assuming that hackers only go after large companies.
"If you are processing credit cards every day, they want to hack into you," Hunter says. "If you have a presence online, you absolutely need the insurance."