Cyber Insurance Explained

Imagine waking up to find your systems locked, your customer data exposed, and your operations completely frozen. For small businesses, this isn’t just a nightmare—it’s a growing reality.

⚠️ According to CISA, small businesses are three times more likely to be targeted by cybercriminals than larger companies, with losses topping $2.4 billion in a single year. That kind of financial hit can be devastating—forcing closures, ruining customer trust, and leaving long-term damage.

💡 That’s where cyber insurance comes in. It won’t stop an attack from happening, but it can give your business a financial safety net when everything else goes wrong.

Our cybersecurity support team can help assess your risk profile and recommend appropriate coverage options to protect your business.

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What is cyber insurance coverage?

Cyber insurance provides financial protection against losses resulting from cyber attacks, data breaches, and other digital security incidents. This specialized coverage helps businesses recover from the financial impact of cyber events that traditional insurance policies typically exclude.

Cyber insurance generally falls into two categories: first-party coverage and third-party coverage.

Type	What It Covers	Examples
First-Party Coverage	Direct costs your business incurs from a cyber incident	Data recovery, business interruption, ransomware payments, notification costs
Third-Party Coverage	Claims made against your business by others affected by the incident	Legal defense costs, settlements, regulatory fines

Most comprehensive cyber insurance policies include both types of coverage to provide complete protection against the various financial exposures a cyber incident can create.

What is data breach insurance coverage? Is it different?

Data breach insurance is often marketed as a standalone product but is typically a component of broader cyber insurance coverage. While cyber insurance covers a wide range of cyber incidents, data breach insurance specifically focuses on incidents involving unauthorized access to sensitive information.

💡 Some businesses with limited digital footprints but significant data storage responsibilities (like small medical practices) might choose data breach coverage rather than comprehensive cyber insurance. However, this limited coverage wouldn’t protect against other cyber threats like ransomware or business email compromise.

Download our free e-book “Cybersecurity and The Trusted Advisor” to see how we can help protect your business from phishing scams and data breaches.

Cyber security insurance: Why your business can’t ignore it

Could your business survive a major cyber attack? For many small and mid-sized companies, the answer is no—and the risks go far beyond just data breaches.

⚠️ Cyber threats today include ransomware, phishing scams, social engineering, and even insider attacks. These incidents don’t just steal data—they can shut down your systems, drain your bank accounts, and destroy customer trust.

According to Embroker, the average cost of reputation damage or lost revenue after a cyber incident hit $1.47 million in 2024. And that’s just one part of the total impact. Costs can continue to build over time—between emergency response, regulatory penalties, and long-term customer loss.

Here’s how average breach-related costs are trending across key industries:

Industry	2023 Average Cost	2024 Average Cost	% Change
Healthcare	$10.93 million	$9.77 million	-10.6%
Finance	$5.9 million	$6.08 million	+3%
Industrial	$4.73 million	$5.56 million	+17.5%
Technology	$4.66 million	$5.45 million	+17%
Energy	$4.78 million	$5.29 million	+10.7%
Pharmaceuticals	$4.82 million	$5.1 million	+5.1%
Professional services	$4.47 million	$5.08 million	+13.6%

The truth is, even a single attack—whether it’s ransomware locking up your systems or a phishing scam stealing employee credentials—can put your entire business at risk.

📌And your general liability policy? It likely won’t cover any of it. Cyber insurance steps in to cover what traditional policies don’t: data restoration, extortion payments, legal defense, customer notification, and even system recovery.

Whether you’re in finance, healthcare, or professional services, the risks are rising—contact us today to protect your business before it’s too late.

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What does cyber insurance cover?

Cyber insurance typically covers the following key elements:

• Data breach response costs: Expenses related to investigating, containing, and remediating a data breach, including forensic services.
• Customer notification expenses: Costs of informing affected customers about a breach, which is legally required in all 50 states.
• Credit monitoring services: Providing identity theft protection services to affected individuals.
• Public relations support: Professional assistance managing your company’s reputation following an incident.
• Business interruption losses: Compensation for income lost during downtime caused by cyber events.
• Cyber extortion and ransomware payments: Coverage for ransom demands and professional negotiation services.
• Legal defense and settlements: Protection against lawsuits resulting from a breach.

💡Real World Case Example: In 2021, a U.S.-based manufacturing firm fell victim to a ransomware attack that encrypted critical production data and halted operations. The attackers demanded a ransom of $2.3 million.

The company’s cyber insurance policy played a pivotal role in the recovery process by covering:​

• Ransom Payment: Negotiation assistance and payment of the reduced ransom amount.
• Business Interruption Losses: Compensation for income lost during the operational downtime.​
• Data Restoration Costs: Expenses related to decrypting and restoring compromised data.​
• Legal and Regulatory Fees: Coverage for legal counsel and potential regulatory fines.​

✔️ This incident underscores the tangible benefits of comprehensive cyber insurance in mitigating the multifaceted costs associated with cyberattacks.

Types of cyber insurance explained

Most cyber insurance policies are structured around a set of core coverage areas designed to address the most common risks businesses face. While coverage can vary by provider, the following types are widely included in modern cyber policies:

• Privacy liability coverage: Protects against claims related to the unauthorized disclosure of confidential information. This typically includes both customer and employee data breaches.
• Network security coverage: Addresses failures in your network’s security that result in malware infections, ransomware incidents, or data breaches. It often includes coverage for business email compromise and denial-of-service attacks.
• Network business interruption: Compensates for lost income and additional expenses when your business operations are disrupted due to a covered cyber event—this may include outages involving third-party vendors or cloud service providers.
• Errors and omissions (E&O): Covers cyber claims alleging that your professional technology services or products failed to perform as intended. This is especially important for SaaS providers, IT consultants, and software developers.
• Media liability: Protects against claims of defamation, intellectual property infringement, or other content-related issues in your digital communications. Businesses with blogs, websites, or social media presence often benefit from this.

💡 These coverage areas are commonly recommended by industry regulators, including the National Association of Insurance Commissioners (NAIC), as a baseline for businesses evaluating cyber insurance.

 Assess your cyber risk today, contact us to make sure your business isn’t left unprotected where it matters most.

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Cybersecurity insurance policy features to understand

When reviewing cyber insurance policies, pay special attention to these critical details that could affect your coverage:

• Retroactive date: This determines how far back in time your coverage extends. Cyber attacks can go undetected for months, so a policy with a limited retroactive period might not cover incidents that occurred before the policy was purchased but discovered afterward.

⚠️ Pre-existing breaches—those that happened before your retroactive date—are typically excluded.

• Waiting period: Most policies include a waiting period (typically 8–12 hours) before business interruption coverage kicks in. Understanding this timeframe is vital for your business continuity planning.
• Claim triggers: Policies differ on what constitutes a claim. Some are “event-based,” covering incidents that occur during the policy period regardless of when they’re discovered. Others are “claims-made,” covering only incidents reported during the policy period.
• Coverage limitations: Most policies do not cover the cost of system upgrades or enhancements beyond the pre-incident state. They also typically exclude losses from the theft of intellectual property or trade secrets—risks that can be especially damaging for tech firms and manufacturers.

Many policies include exclusions for incidents resulting from inadequate security practices. For example, if you fail to patch known vulnerabilities or implement multi-factor authentication, your claim might be denied.

According to a study by the Cybersecurity and Infrastructure Security Agency (CISA), approximately 41% of cyber insurance claims are denied due to policyholder negligence.

Social engineering attacks (such as business email compromise) may also be limited or excluded. Despite causing over $2.7 billion in losses annually according to the FBI, some policies cap coverage at $100,000 or require a separate endorsement.

Let us help you strengthen your cybersecurity and make sure your insurance coverage holds up when it matters most. Contact us today

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Cyber insurance benefits for small businesses

Small businesses stand to gain significant benefits from cyber insurance beyond just financial protection:

• Business continuity: Provides financial resources to keep your business operational during recovery from a cyber incident. This is especially important for businesses with limited financial reserves.
• Customer trust preservation: Demonstrates your commitment to protecting customer data, potentially retaining clients who might otherwise leave after a breach.
• Regulatory compliance support: Helps navigate the complex landscape of data privacy regulations like GDPR, CCPA, or industry-specific requirements.
• Crisis management expertise: Grants access to specialized incident response teams that small businesses couldn’t otherwise afford.
• Competitive advantage: Increasingly, business partners and clients require cyber insurance as a prerequisite for contracts.

✔️ According to the Cyber Insurance Market Assessment, cyber insurance not only helps organizations recover from cyber incidents but also encourages them to adopt stronger cybersecurity practices.

To help further protect your business, check out our 16 ways to protect your business from a cyberattack, a helpful checklist for proactive security measures.

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Cyber security insurance requirements: What insurers look for

Insurers are becoming increasingly selective about the businesses they cover. Here’s what they typically require:

• Multi-factor authentication (MFA): Implementation across all accounts, particularly email and remote access systems. This is now a non-negotiable remote work security requirement for most policies.
• Regular data backups: Secure, encrypted backups stored offline or in segregated environments, tested regularly for restoration capabilities.
• Employee security awareness training: Documented programs to educate staff about phishing, social engineering, and other common attack vectors- like recognizing warning signs when asking themselves how do I know if my email has been hacked.
• Endpoint detection and response solutions: Advanced tools that go beyond traditional antivirus to detect and contain threats.
• Patch management processes: Documented procedures for timely application of security updates to all systems.
• Incident response plan: A formal, documented plan for responding to various types of cyber incidents.

Who needs cyber security insurance?

If your business stores customer data, accepts electronic payments, uses email, or has a website—which describes virtually every modern business—you need cyber insurance.

💡 Hypothetical Scenario: A small accounting firm with just 15 employees experiences a ransomware attack during tax season. Without proper insurance, they face $25,000 in immediate recovery costs, $50,000 in lost revenue during the week-long outage, and potentially hundreds of thousands in client damages and regulatory penalties.

💡 Real-World Case Example: In 2013, a healthcare provider was targeted by a phishing attack that exposed sensitive patient data. Their cyber insurance covered $750,000 in HIPAA fines, forensic investigation costs, and required patient notifications. The policy also provided legal support to navigate compliance issues, preventing significant financial and reputational damage. Without insurance, the costs could have been devastating to the business.

Cyber threats are a significant concern for businesses of all sizes. According to the Cybersecurity and Infrastructure Security Agency (CISA), small and medium-sized businesses (SMBs) are particularly vulnerable, with many lacking advanced security measures. This vulnerability makes them attractive targets for cybercriminals.

Additional reading: first party vs third party cyber insurance

Reduce your insurance premium with a CMIT Solutions cybersecurity package

Implementing robust cybersecurity measures not only helps protect your business but can also lead to significant savings on your cyber insurance premiums. Insurers are increasingly requiring businesses to meet specific cybersecurity standards, and those who do can often see premiums reduced by 15-30%.

CMIT Solutions offers a comprehensive cybersecurity package designed to meet the key requirements that insurers look for, including:

• Multi-factor authentication (MFA) implementation
• Secure data backup and recovery
• Advanced threat detection and response
• Employee training on security best practices
• Regular system updates and patch management

By strengthening your cybersecurity posture with our solutions, you not only reduce the risk of a breach but also improve your insurability, ensuring that you get the best possible coverage at a lower cost.

Contact us at (800) 399-2648 or contact us online to schedule a cybersecurity assessment today. Let us help you lower your cyber insurance costs while strengthening your defenses.