It’s not unusual for small business owners to underestimate their vulnerability to cyberattacks and what they stand to lose if they become the victim of one. It’s tempting to think that cybercriminals target only larger businesses. It’s also dangerous. Cybercriminals often target small businesses because they believe they’re easier to victimize than larger companies. And in many cases, they’re right, which is why we have put together this blog on small business cyber risks to help you avoid them.
Risks to Small Businesses
Here are three examples of likely scenarios that should make small business owners think twice about the potential for cybercrime and the possible consequences.
Example 1
A small law firm in North Carolina was hit by a ransomware attack. The hackers encrypted the firm’s files and demanded a $25,000 ransom in Bitcoin to restore access to critical legal documents.
Unable to access its case files for nearly two weeks, the company experienced delays in client services and court filings and eventually paid the ransom. But the decryption process was slow, and some files were permanently lost.
Estimated losses from the ransom payment, IT recovery services, lost revenue due to business interruption and reputational damage added up to approximately $100,000.
Example 2
A small accounting firm in Texas fell victim to a phishing attack when an employee unknowingly clicked on a malicious link in an email. The attackers gained access to sensitive client information, including social security numbers and tax records. The breach led to the theft of client identities, resulting in multiple clients suing the firm for negligence in failing to protect sensitive data.
In addition to severe damage to its reputation and a significant loss of clients, the phishing attack cost the firm more than $150,000 to hire legal counsel, offer credit monitoring services to affected clients, and implement new security protocols.
Example 3
Hackers were able to circumvent the outdated security software used by a small e-commerce company, infiltrate the payment system, and steal customers’ credit card information. The company had to pay regulatory fines for noncompliance with data protection laws. And customers sued for damages related to identity theft, resulting in legal fees and settlements. Although the company subsequently upgraded its cybersecurity system, customer trust was lost and sales dropped. The total estimated loss: in excess of $250,000.
In each of these cases, the small business experienced significant financial losses and reputational damage. And these examples are merely the tip of the iceberg.
Extent of the Problem
Recent statistics show that more than 60% of small businesses have been targeted by cybercriminals, with financial losses ranging from $25,000 to $65,000. In the most severe cases, losses have exceeded $600,000. Alarmingly, 59% of small businesses that have experienced a significant cyberattack have failed within the following six months. These consequences can be mitigated or prevented entirely when small businesses are protected by cyber insurance.
Why Small Businesses Need Cyber Insurance
Cyber insurance, also known as cybersecurity insurance or cyber liability insurance, is designed to protect businesses of all sizes from the financial risks associated with cyberattacks, data breaches, and other digital threats. Cyber insurance is particularly important for smaller businesses because they are attractive targets and often lack the resources to recover from a significant cyberattack.
Other key reasons driving the need for small business cyber insurance include:
- The increasing number of cyberattacks globally
- The regulatory requirements and penalties related to the protection of customer data
- The crippling cost of recovering from a cyberattack
- The customer confidence gained from knowing that the companies they do business with have cyber insurance, as well as cyber security measures in place
How Cyber Insurance Protects Small Businesses
Cyber Insurance protects small businesses against losses and expenses resulting from such occurrences. Coverage of losses from cyberattacks may include:
- Lost income from disruption of business operations
- Legal defense costs, settlements, and judgments resulting from lawsuits filed by affected customers
- Fines associated with data breaches and noncompliance with data protection laws.
- Ransom payments and the costs associated with negotiating or dealing with cyber extortion threats
- Losses due to fraudulent fund transfers
- Expenses related to notifying affected customers, providing credit monitoring services, and complying with legal or regulatory requirements after a data breach
- Costs of restoring or repairing IT systems, software, and data that have been damaged, deleted, or corrupted during a cyberattack
- Costs related to rebuilding a business’s reputation after a cyberattack, such as public relations costs
Not all cyber insurance policies will cover all of these costs, and deductibles may apply.
Cybercrime Terminology
Cyber insurance typically provides small businesses protection against losses caused by cybercrimes, often referred to as cyberattacks. The terminology used in referring to cybercrime can be a little confusing, but in general:
- A cyberattack is any deliberate exploitation of computer systems, networks, or devices to steal, alter, or destroy data or disrupt operations. Cyberattacks can take various forms, such as malware, phishing, and ransomware.
- Malware (short for “malicious software”) refers to any software designed with the intent to harm, exploit, or otherwise compromise the functionality or security of computers, networks, or devices. Malware comes in various forms, including viruses, worms, ransomware, spyware, and trojans, each serving different malicious purposes such as stealing data, corrupting systems, or extorting victims.
- Phishing is a type of cyberattack in which individuals are deceived into providing sensitive information, such as passwords or credit card details. Typically, the attacker sends emails or text messages designed to look like they’re from a legitimate entity. Phishing is one of the most common ways hackers gain access to small business systems.
- Cyber extortion refers to the practice of demanding money or other benefits from a business under the threat of a cyberattack. The attacker often uses ransomware to encrypt a company’s data and then demands payment to restore access.
- A data breach occurs when sensitive, protected, or confidential information is accessed, disclosed, or stolen electronically without authorization.
Coverage Amounts, Policy Limits, and Deductibles
The average deductible for small business cyber insurance typically ranges from $1,000 to $10,000, depending on the policy and the insurer. Within that range, deductibles can vary significantly based on the size of the business, the industry, the specific risks being covered, and the overall coverage amount.
The lower the coverage limits (the maximum amount that will be paid on a claim), the lower the deductible is likely to be. Higher coverage limits usually require higher deductibles.
The premium for policies with higher deductibles may be lower because they require the business to absorb more of the costs in the event of a claim. So when purchasing cyber insurance and making policy coverage decisions, small businesses need to assess the risk of a cyberattack compared to the insurance premium quoted by the insurer.
For small business owners, the question is not “Do we need cyber insurance” or “Can we afford it?” It’s “Can we afford not to have it?”
Why Choose Crosby Insurance Group?
At Crosby Insurance Group, we offer personalized service and expert guidance to help you find the best cyber security insurance coverage. Our experienced agents work closely with you to understand your specific needs and tailor policies that provide the best possible protection for your business and financial well-being.
In the event of a claim, we are committed to helping you receive fair and prompt payment. We strive to make the claims process as smooth and stress-free as possible, providing support and assistance every step of the way. Get a free quote today.
