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Corporate Compliance Insights
Home Data Privacy

Cybersecurity Insurance: Breaking Down the Benefits

by Arabella Hallawell
January 2, 2018
in Data Privacy, Featured
cyber security

An Effective Risk Management Tool for Your Business

Corporate data breaches are on the rise and many businesses are rethinking their security strategies and plans for risk management. This piece discusses how these repercussions are causing business leaders to implement more holistic approaches to security that include preventative measures in addition to attack response plans that includes cybersecurity insurance.

With corporate data breaches on the rise, many businesses are rethinking their security strategies and plans for risk management. Hacks, breaches and outages are proving to be more than just technical issues. Instead, they’re leading to larger potential fines in countries within the EU, loss of customers and not just potential negative reputation for affected companies, but the potential for actual physical harm caused to employees or customers in certain verticals.

These repercussions are causing business leaders to implement more holistic approaches to security that include preventative measures in addition to attack response plans. Preventative measures serve to better network defenses and implement best security practices. Response plans should include cybersecurity insurance, a coverage plan designed to be implemented when an attack occurs.

What is Cybersecurity Insurance?

Cybersecurity insurance helps protect businesses that have experienced impacts to finances due to internet based risks. This concept first emerged in the late 1990s when organizations were hit with disruptions from mass-scale viruses and outages. At that time, many purchased riders to their existing Errors and Omissions (E&O) insurance, a type of professional liability insurance that protects companies and their workers made by clients for negligent actions. Others purchased standalone policies that typically had small limits on coverage, with broad exemptions. Even though this concept has been around for decades, the cybersecurity insurance market still remains in its infancy phase and only recently gained notoriety due to the exponential number of security breaches headlines that seem to be hitting our inboxes almost daily.

The Rise of Cybersecurity Insurance

In the early 2000s, an escalating number of breaches occurred in consumer databases containing personal information. At that point, most states enacted security breach notification laws. This prompted lawyers and financial services companies to become increasingly involved. What’s more, large banks and Fortune 500 companies raised demand for larger, comprehensive policies. In these cases, some used insurance policies as another risk transfer mechanism.

However as data breaches became a reality, those looking for pay-outs from their policies found that many exclusions applied. For example, when Sony’s PlayStation network was breached in 2011, more than 77 million personal accounts were breached, which cost Sony an estimated $170 million. Sony thought its general liability insurance policy would cover this loss, but it didn’t. The company learned its lesson and when it had another security breach in 2014; it had a cyber insurance policy that paid out most of its $100 million in losses.

Moreover, there are still additional factors that cybersecurity insurance does not take in consideration such as reputation damage, impact on customers due to their loss of privacy and business downturns that can be triggered by a security breach. Creating policies that address these concerns as cybersecurity insurance continues to evolve will be critical.

Is Cybersecurity Insurance The Answer?

As the demand and premiums go up for cybersecurity insurance, and those covered often face rigorous cybersecurity audits, can we ever look to cybersecurity insurance to be an effective risk management solution for organizations? As we evaluate at the current presence of cyber threats, where IoT security risks could actually result in direct harm to consumers, the issue of liability and fault becomes a web of complicated interdependencies between manufacturers of devices and the consumers or corporations that interact with them. Will policies ever pay out if a business was impacted due to low security controls in another’s device? As we saw in the attack on Dyn in 2016 or Mirai earlier this year, where a large number of e-commerce and retail companies suffered outages, is it the insurance companies responsibility to pay out all of the online companies that were affected by the downtime due to a third party issue? In addition, the fact that cybersecurity breaches can remain undetected for several months or even longer, creates the possibility of accumulated and compounded future losses.

Like insurance companies coverage of major earthquake or flood zones, can insurance protect us in our increasingly interconnected world, where we are dependent on the stability, and the delicacy of the Internet? Insurers will need to overcome these obstacles to fully understand and realize the potential this market. In addition, businesses will need to educate themselves on policies before they buy.


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Arabella Hallawell

Arabella Hallawell

Arabella Hallawell is Vice President of Corporate Strategy at Arbor Networks. In this role Arabella is responsible for directing Arbor’s corporate strategy, business development partnerships and the company’s M&A strategy. Arabella comes to Arbor with over 20 years of experience in IT security and strategy. Prior to joining Arbor, Arabella was Vice President of Corporate Strategy at Sophos, a global IT security vendor headquartered in Boston and Oxford, UK. At Sophos, Arabella was responsible for corporate and M&A strategy, and introduced the company’s customer and market intelligence functions. Prior to Sophos, Arabella was Research Vice President at Gartner, the IT research and advisory services firm. At Gartner, Arabella led coverage of the endpoint, e-mail and web security markets and counseled many of the world’s largest corporations, governments and technology providers on technology and market trends and their strategic implications. Arabella received her BA from University College London, United Kingdom and MA from the Fletcher School of Law and Diplomacy, Tufts University, USA.

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