In today’s business world, organizations of all kinds rely on computerized systems to provide services to customers. Data collection and transmission between organizations, such as in banking, healthcare, or insurance, facilitates efficient operation. Unfortunately, as more companies leverage the power of IT systems to do business, the risk of a data breach grows.
Data breaches have been implicated in the loss of millions of personal details, including credit card information, addresses and telephone numbers, Social Security numbers, and confidential medical records. The costs associated with these data breaches can run into the millions of dollars, and are split between first- and third-party expenses. In this guide, we will investigate the costs associated with data breaches, illustrating the need for cyber insurance as a part of the overall risk management strategy.
First- Vs. Third-Party Liability Coverage
What are the costs associated with a business-related data breach? There are many obvious costs, and some that may come as a surprise. To gain a better understanding of the costs, it is useful to know the distinction between first- and third-party expenses:
- First-party expenses can include the costs associated with notifying affected customers and employees of a data breach. Public relations and reputation management/recovery costs are also first-party expenses. Business interruption expenses, cyber extortion reimbursement, and legal and forensic expenses to determine the extent of a data breach and its perpetrators are also grouped in first-party expenses.
- Third-party expenses include the legal aspects of a data breach, particularly in the legal fees and costs of settlements, civil awards, or judgements resulting from a lawsuit. Liability costs centered on network security, privacy liability, and copyright infringement/domain name infringement (electronic media liability) are also grouped under third-party expenses.
Some insurance carriers place their focus on selling or providing insurance coverage for the first-party expenses associated with a data breach. While this is an important part of the picture, in many cases the third-party expenses are even more critical, and coverage for these expenses can benefit an organization tremendously. Legal claims filed by affected individuals in a data breach can result in thousands or even millions of dollars in expenses, negatively impacting a company’s assets and its ability to continue operation. Cyber insurance forms an umbrella of protection when both first- and third-party liability considerations are part of the policy.
Tips for Insurance Agents
In order to facilitate the appropriate insurance protection for organizations that rely on electronic customer information, insurance agents must be prepared to ask several questions of their current and potential clients. Try to gain an understanding of how much personally-identifying information the organization collects or uses in its operations, and inquire about information accessed or shared with others. By determining the potential exposures inherent in electronic records use and distribution, insurance agents can tailor cyber insurance solutions to meet the needs and risks of each individual client.
About Caitlin Morgan
Caitlin Morgan is a premier wholesaler providing insurance products for the home healthcare sector, which includes companies that provide healthcare services in patients’ private residences, assisted living or independent living facilities as well as Captive Insurance. For more information call us at (317) 575-4440.