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Why aren't (SMBs) Small and Midsized Organizations rushing to purchase Cyber Insurance?

Special Risks Insurance

Updated on Mar 26, 2013

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Why aren't (SMBs) Small and Midsized Organizations rushing to purchase Cyber Insurance? by Christine Marciano, President, Cyber Data Risk Managers
Why aren't small and midsized organizations rushing to purchase cyber insurance? This question was a topic of discussion at a cyber insurance workshop hosted by the Department of Homeland Security (DHS) that examined today's cybersecurity insurance market. The meeting focused specifically on the challenges to the first-party insurance market. The goal of the meeting was to determine what obstacles prevent a more robust cybersecurity insurance market than exists today. The workshop had a lively discussion in which academia, government officials, IT professionals, risk managers, and insurers discussed together how to improve upon the cyber insurance market. The group also talked about the reasons why many companies have not rushed out to purchase cyber insurance. With talk of President Obama signing an Executive Order, it's no surprise that DHS is interested in helping spur the cyber insurance market, especially when you consider that cyber risk has become a top threat to businesses of all sizes. While news of cyberattacks is an almost daily occurrence, a "cyberattack" is something of a misnomer for SMBs, since their focus tends to be more on running and growing their businesses. A cyberattack can seem far-fetched to a SMB. Perhaps the word "cyber" can also be blamed, as anything virtual (and intangible) can seem insignificant and unreal, leading SMBs to feel a cyberattack could not happen to them. This could be one reason why SMBs are not rushing to purchase cyber insurance, as companies often don't fully understand the threats. Another reason, mentioned at the DHS Cyber Insurance workshop, was that many companies today are taking the position that their existing insurance policies cover cyber incidents and that they don't need special cyber coverage. That's a huge misunderstanding. It should to be noted that almost all traditional business insurance policies do not cover cyber incidents. While we all know the saying, "What you don't know can't hurt you," this should not be applied in the case of cyber insurance. SMBs need to review their existing insurance policies to check whether or not they have coverage for a security incident or a data breach. If it's discovered that there is no coverage, an SMB needs to take appropriate action to manage its cyber risk and limit its liability. Today, it is becoming common that cyber insurance is a requirement when entering a contractual agreement. Besides determining whether cyber coverage exists, an SMB needs to review all its contractual agreements very carefully to see if it is being requested to indemnify the other party, should it be responsible for a security incident or a data breach. Nonetheless, cyber insurance should be purchased if this is the case. The workshop participants also felt that education and awareness of what cyber risks the industry should address and how, as well as what role cyber insurance can play in helping change corporate attitudes toward cyber risk, are key to drive the purchase of cyber insurance. While cyber insurance may not prevent a security incident, perhaps DHS's interest in the matter can prevent government from issuing static cyber security laws that could only end up hurting businesses and not helping them due to the evolving and dynamic nature of cyber risk. Stay tuned. *Article originally appeared in http://www.point2security.com (12/28/12) CONTACT: Christine Marciano CYBER DATA RISK MANAGERS LLC US toll free: 1 +855.CUT.RISK Fax: 1 +732.709.1684 Twitter: @DataPrivacyRisk
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