Cyberattacks are increasing at an alarming rate, causing concern for businesses in both the private and public sectors. To help diminish these attacks, the Trump Administration issued an executive order on May 1, 2017 that mandates all U.S. federal government agencies to create formal cybersecurity risk management plans to protect their sensitive information.
Each agency of the government is responsible for network protection and must modernize its IT systems. Government agencies are also expected to enhance their management and control of controlled unclassified information (CUI) using the National Institute of Standards and Technology’s Cybersecurity Framework. The government requires all government contractors to also comply with these cybersecurity standards.
To protect against the financial and reputational risks of cyber threats, government contractors are encouraged to acquire cyber liability insurance.
What Is Cyber Liability Insurance?
Like many business professionals, government contractors often use computers and other technology to store, send or receive electronic data. This data may contain tax records, sales projections, contingency plans or private customer information such as credit card numbers or health records. When this information is damaged, lost or stolen due to a security breach, it puts the contractor at risk for a lawsuit or third-party claim.
Cyber liability insurance is a type of business insurance that helps cover financial losses that result from cyber events including data breaches. These policies can differ and may include first-party coverage, third-party coverage or both. With first-party coverage, out-of-pocket expenses that may result from a data breach are covered. Third-party coverage refers to settlements or other damages a business may be obligated to pay as a result of a lawsuit or claim for injuries resulting from the business’s actions or failure to act.
Some common first-party coverages a government contractor may obtain through a cyber liability policy include:
Cyber liability insurance may cover the cost to restore or replace any programs, software or electronic data destroyed or damaged by a cyber event, such as a virus, hacker attack or denial of service (DoS) attack that is included on the policy as a covered peril.
A policy may include coverage for ransom that a business pays to a cyber hacker who breaches the business’s computer system and commits malicious actions, such as releasing a virus, damaging data, stealing confidential data or initiating a DoS attack. In addition to covering any ransoms that the hacker may request, the policy may also cover related expenses to include the cost of hiring a professional to negotiate with the extortionist.
Loss of Income and Fees
Cyber liability will often cover any income loss that the government contractor experiences, as well as additional expenses that may arise when restoring operations following a shutdown caused by a hacker attack, virus or other covered peril.
Some cyber liability policies provide coverage for crisis management costs, such as the cost of hiring a computer expert, an attorney, a public relations expert or a forensic accountant.
Cyber liability insurance will generally cover the expense of notifying any third parties who may have been impacted by the data breach or other cyber event. Having coverage for notification expenses is critical as businesses are legally required to make all affected parties aware that their information may have been compromised. In some cases, a policy may also cover the cost of providing affected parties with credit monitoring services.
What Does Cyber Liability Insurance Not Cover?
Although cyber liability insurance does provide extensive coverage options to government contractors and other business types, these policies do have their limitations.
Some of the most common exclusions on cyber liability insurance policies include property damage, bodily injury, contractual liability, war and terrorism, intentional dishonest acts that are committed by the insured, utility failure, acts that are committed before the retroactive date (if applicable) and the cost of restoring computer systems to a high level of function.
How Much Does Cyber Liability Insurance Cost?
Cyber liability insurance policies can range in cost from a few hundred dollars per year to tens of thousands of dollars annually. Coverage is generally tailored to a business’s unique needs and budget with many factors influencing that cost.
Coverage limit is a major factor that helps determine the cost of a policy. The more complex and higher a business’s coverage needs are, the costlier the policy. Businesses that use multiple servers to store large amounts of customer data will typically pay more for insurance compared to a small business with one server and less data.
When data is limited to certain people, businesses can save money on insurance costs. Granting authorization to only senior employees to access sensitive data can lead to lower costs compared to granting all employees authorization to access this data. The insurance company will also consider what security measures the business has in place, such as network firewalls and antivirus software. These security precautions may help lower a business’s premiums.
The industry in which the government contractor works will also influence insurance costs. Businesses that perform the bulk of their work online will likely face higher insurance costs compared to a business with a low amount of website traffic and a minimal online presence.
Finally, the insurance company will take a business’s claims history into consideration when providing an insurance quote. If a business has a history of multiple insurance claims, it may face a higher premium compared to a business that has no or few claims.
Speak With An Experienced Benefits Consultant
Government contractors often have a regulatory or contractual responsibility to keep customers’ personal data safe. However, even with the proper security measures in place data breaches and other cybersecurity events can still occur, leaving businesses vulnerable to lawsuits. Cyber liability insurance can help protect government contractors from the financial repercussions of a third-party claim.
To learn more about how cyber liability insurance works for government contractors, or to acquire a cyber liability insurance policy for a business, reach out to the experienced benefits consultants at Business Benefits Group.