When Do I Need Cyber Insurance?

The digital world is full of opportunities but also risks. Cyber threats are everywhere, and without the right protection, your business could be left vulnerable.

The cost of cybercrime globally is predicted to exceed USD$10.5 trillion (AUD$16.6T) in 2025!

In Australia, Small & Medium-sized Enterprises (SMEs) make up nearly 99% of all Australian businesses (<200 staff or <$10M revenue) and employ 67% of the workforce. Of these SMEs, nearly 60% go out of business after experiencing a cyber breach, and the problem is only expanding.

In risk management, businesses have four primary ways to address risk. If accepting the risk and its consequences is not an option, they can either avoid it by steering clear of the activity altogether or mitigate it by implementing security measures and controls to reduce its impact. The final approach is risk transfer, where the financial burden of the risk is shifted to another party, such as through insurance.

Traditional business insurance covers physical losses, but cyber insurance is designed to shield you from digital dangers like data breaches, ransomware attacks, and regulatory fines. So, when do you need to obtain cyber insurance? Let’s explore.

What Exactly Does Cyber Insurance Cover?

Cyber insurance acts as a financial safety net when things go wrong online. Coverage will vary from policy to policy, but it typically includes:

• Data Breaches. Covers investigation costs (finding out how the criminals got in, so you can close that access), legal fees, and customer notification expenses if sensitive data is compromised.

• Cyberattacks & Ransomware. Helps mitigate costs associated with malware, ransomware, and cyber extortion.

• Business Interruption. Provides compensation for lost revenue during downtime caused by cyber incidents.

• Regulatory Compliance & Fines. Assists with legal costs and fines for non-compliance with data protection laws.

• Third-Party Liability. Protects your business if a data breach leads to lawsuits from clients or partners.

• Crisis Management. Supports public relations efforts and offers credit monitoring services for affected customers.

How Does Cyber Insurance Differ?

Traditional business insurance covers physical damage and liability, but it these days it rarely extends to cyber risks. Cyber insurance specifically addresses online threats, ensuring you have financial protection against digital disruptions that could otherwise be devastating.

What is Typically Not Covered?

While cyber insurance provides crucial financial protection, it does not cover everything. Policies often exclude the following:

• Bodily Injury and Property Damage. Designed for digital risks, not physical harm. If a cyber incident leads to injury or damage to physical assets, other types of insurance would be required.

• Prior Known Facts or Circumstances. If you are already aware of a security vulnerability, data breach, or cyber incident before obtaining the policy, any resulting claims may not be covered.

• Intentional or Fraudulent Acts. Coverage does not extend to incidents caused by deliberate misconduct, fraud, or illegal activities conducted by the business or its employees.

• Damage to Computer Hardware. Covers digital losses, such as data breaches or ransomware attacks, but usually does not cover the cost of replacing damaged or compromised physical hardware.

• Upgrading Applications, Systems, or Networks. Helps recover from incidents, however it does not fund general IT improvements, security upgrades, or preventive measures like replacing outdated software or infrastructure.

• Failure or Outage of Power, Utilities, Satellites, or Telecommunications. If an external power or internet outage disrupts your business, cyber insurance will not compensate for lost revenue or downtime. Other types of insurance may be needed to address these risks.

Do You Need Cyber Insurance? Here Are Key Considerations

Consider cyber insurance if:

• You Handle Sensitive Data. Storing customer information, payment details, or health records increases your risk.

• Regulations Apply to You. Industries with strict data security laws benefit from coverage that helps with compliance.

• You Rely on Digital Operations. If a cyberattack could cripple your business, insurance is essential.

• A Cyber Incident Could Be Costly. The financial impact of a breach can be severe. Cyber insurance mitigates this risk.

• Your Contracts Require It. Many clients and partners expect businesses to have cyber insurance in place.

The Takeaway

If your business operates online or stores sensitive data, cyber insurance is fast becoming a necessity. Cyber threats are evolving, and having the right protection in place ensures you’re prepared for the unexpected. A strong cybersecurity framework is crucial, but insurance adds an extra layer of financial security, keeping your business resilient in an unpredictable digital world.

Cybersecurity doesn’t have to be complicated when you have the right partners. Whether you need to assess your cybersecurity framework, test your existing controls, or simply get some guidance, we’re here to help. Let’s have a quick chat to ensure your business is secure and future-proof.

And lastly, our job involves tech... not insurance brokerage. So, while I hope this information is useful, please consult a professional for advice tailored to your situation. And to that end, we've partnered with people who really understand insurance. Click the logo below to get pricing, and you will receive a rebate on your premium if you decide to purchase through them.