[BreachExchange] 7 things you might not know about cybersecurity insurance

[Audrey McNeil]

http://www.jdsupra.com/legalnews/7-things-you-might-not-know-about-93710/

The number of cyber attacks and data breaches are increasing, and the costs
to respond to such incidents are also increasing. This underscores the
importance of cyber insurance, a valuable tool that companies can access
that will help defray these substantial costs.

If it isn’t already, cyber insurance should be top of mind for all
industries and companies, regardless of size, as they find that they are
increasingly vulnerable to a cyber attack and data breach. But though cyber
insurance is increasing in prominence and importance, questions about how
the insurance responds remain. What should you consider when purchasing a
cyber insurance policy? How should you evaluate and compare different
cybersecurity insurance policies? Below, we outline some key considerations
related to cyber insurance that you should be aware of before embarking on
the search for a policy.

1. A knowledgeable cyber insurance broker could be your best ally

Cyber insurance isn’t an area where you want to skimp on the experience of
your broker. To find and evaluate the best possible policies for your
organization, it’s critical to partner with a broker who has extensive
experience in the cyber space. An experienced broker is going to understand
your risk, and help you find and possible craft a policy that provides
coverage specifically tailored to these risks.

2. Strap in: The underwriting process can be long and complex, but worth it

The underwriting process can be complex, and that’s to your company’s
benefit: It means you’re crafting a policy specifically tailored to your
operations, customers and risk profile.

During the underwriting process, a broker may facilitate extensive
interviews and information-gathering with members of your key business
units — financial operations, HR, IT, and others. Often the broker will
arrange a phone or in-person meeting with your team and several
underwriters from different carriers, so the insurers can ask further
questions before offering up their proposed policies. Some underwriters may
want to conduct a site visit.

This type of in-depth scouting may seem unusual, but in the cyber realm, it
is critical. Unlike a typical property policy, which operates almost at
arm’s length (you submit a claim, the insurer pays or denies it), a good
cyber policy involves a more hands-on process from both the insurer and the
insured. The damage wrought by a cyber incident may vary wildly from
incident to incident and its effects could drag on for months or even
years. Your cyber insurer will be with you for the long haul, and they’re
likewise invested in your organization not having an incident.

3. Select the right privacy counsel

Having the right resources as your disposal is a vital part of strong cyber
security hygiene. When it comes to the potential impacts following a breach
event, every organization should have the right legal resources engaged in
drafting their business continuity and incident response plans. Also, your
insurance coverage should allow you to select the counsel of your choice
(subject to underwriter approval) and preferably well in advance of any
breach event. Clearing this hurdle upfront can assure that you’re partnered
with a legal team that knows your business objectives and how they
influence the strategic decisions you must make in a breach situation. It’s
best to have a privacy lawyer who has experience in addressing all impacts
from a cyber attack and can help preserve your business reputation through
all stages of breach response.

4. Your vendors could make all the difference

Every company touches vendors in some way. And those vendors are just as
vulnerable to cyber attacks as your company — sometimes even more so. It
may be possible to tailor your cyber policy to extend to those vendors. You
should also have awareness of whether your own company could be viewed as a
vendor to others. If you provide services to companies, or if damage to
your network could affect those of your customers or clients, then you need
to account for vendor liability.

5. Don’t expect coverage for your servers or hardware

If a cyber attack — or your company’s own efforts to repel or address a
cyber attack — damages your server or hardware, it’s unlikely your cyber
insurance policy would cover repair or replacement. Most cyber policies
focus only on intangible assets like data, networks, liability and
reputation. For coverage of damages to any tangible assets, look to your
general business or property policies.

6. Pay attention to exclusions

Exclusions are key to any insurance policy, but with a cyber policy, they
could have a significant impact on your coverage. Pay attention to the
insurer’s list of possible exclusions.

Often, cyber policies do not cover criminal fines. Additionally, while they
can be written to provide coverage for the insured organization as a result
of the intentional acts of a rogue insider, not all policy wordings are
alike. It may be possible to write in coverage for punitive damages where
permissible by law, but always pay extra attention to the definitions
section of the policy.

One huge area of potential exposure for a company relates to unencrypted
devices. Some insurers may not cover a breach that originated from an
unencrypted device. That’s yet another reason to look closely at your own
policies and procedures for electronic devices.

7. Don’t forget to consider “must do” vs. “should do”

It’s one thing to respond to a data breach by doing the bare minimum
required by law. It’s quite another to make customers or employees feel
whole. Every company enduring a data breach has to strike a balance between
“what we must do” and “what we should do.” Thankfully, many cyber policies
can cover voluntary services that, although not specifically required by
the law, will allow your company to make the appropriate effort to fully
support those affected by your breach and, at the same time, potentially
mitigate further damage to your reputation, internally or externally.

Every company’s risk profile and every cyber insurance policy is different.
The most important thing you can do is work with experienced insurance
professionals, legal counsel, and others to ensure you find the right
policy and stay vigilant about your end of the agreement (including all
cybersecurity policies and procedures).
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