Be honest. When we talk about cyber insurance, is your first thought one of the following?
- "We're too small to be targeted"
- "Our managed service provider handles security"
- "Insurance is optional"
- "We can't afford cyber insurance for our small business"
If you admitted that yes, you do think that, then this blog is for you. We're going to dive deep into why cyber insurance is important for small businesses and an essential part of protecting your business.
Key Takeaways
- Cyber insurance helps SMBs offset the massive costs of data breaches and enables fast, expert-led recovery after an attack.
- Insurers require proof of proactive security controls, from backups to endpoint monitoring, before offering coverage.
- MSPs play a vital role in preparing businesses for cyber insurance readiness through assessments, documentation, and ongoing support.
The Business Case for Cyber Insurance
Cyber risk for small businesses is just as great, if not greater, than the threat to large enterprises. The reasons are many:
- Cyber attacks do not differentiate between business types and sizes, so small businesses face the same attacks as bigger companies
- Fewer resources, both human and budgetary, mean small businesses may have less effective defenses
- Complex, ever-evolving cyber threats can move too quickly for small businesses to keep up, leaving them vulnerable
- Lack of budget to fund cybersecurity can create gaps and opportunities for cyber attacks to go unnoticed
Even when small businesses address cybersecurity needs, investing in security tools and employee security awareness training, they have fewer resources to manage a response to an attack. That is where cyber insurance steps in. Your cyber insurance coverage helps offset costs, enables a quick response, and often provides expert guidance in the event of an attack. While cyber insurance for small businesses doesn't replace good security—it transfers the financial risk of an event that can otherwise wipe out cash flow, stall operations, and damage customer trust.
Why Small Businesses Need Cyber Insurance
Too many businesses fail to realize that when a cyber attack occurs, their business becomes a crime scene. There is often restricted access to operational tools, your IT network, your customer information, and more. While the "crime scene tape" may be digital, it stops business operations just as much as a physical crime scene would.
And, in much the same manner, with your business effectively closed, you will start to watch costs pile up and revenue drop. In fact, the average cost of a data breach, according to 2024 IBM research, is nearly $5 million. Even if your small business cyber incident is less expensive than the global average, the category of costs are the same—and SMBs typically have far smaller financial buffer zones.
So, ask yourself:
- If our business was closed by a cyber attack, what would our daily financial loss total?
- What would it cost to provide credit monitoring for our employees and customers if the personal data we store was compromised?
- Would a data breach put us in violation of regulatory compliance standards and potentially lead to a financial penalty?
- What would it cost to replace damaged IT components, such as a damaged server or compromised laptops?
- What would the reputational cost be if an attack forced us to alert our customers that personal information had been stolen?
When you consider the incredibly negative consequences of a data breach or ransomware attack from this point of view, you are likely starting to see the reason cyber liability protection is critical for all businesses.
Cyber Insurance Benefits for Small Businesses
Just as investing in integrated, comprehensive cybersecurity measures is table stakes for businesses in today's threat-riddled digital world, cyber insurance is increasingly part of "doing business," not just for financial protection, but because more and more vendors, regulatory agencies, and customers expect or even require it. Securing cyber insurance is part of a multilayered approach to security, an extension of the security posture that businesses should prevent what attacks as best they can, but also be prepared to recover quickly when something slips through.
What cyber insurance helps pay for depends on coverage choices and the security maturity level of your business. But typically, cyber insurance will offset the costs of:
- Incident response and required data forensics
- Data breach legal costs and counsel, and required breach notifications
- Public relations and crisis communications
- Ransomware extortion support and negotiation guidance
- Business interruption and recovery costs
- Potential regulatory defense and fines
It's easy to see why small businesses need cyber insurance; the potential for a single cyber attack to forever close business operations is a real threat. But beyond the financial protection and expert guidance that come with cyber insurance, there are other compelling reasons. First among those, for businesses governed by regulatory compliance standards, is the expectation of insurance by those agencies.
How Do Small Businesses Secure Cyber Insurance?
Now that we've established why cyber insurance is so important, the next step is to evaluate your organization's state of preparedness as it relates to cybersecurity solutions, policies, processes, and documentation. Why? Cyber insurance coverage relies on a shared responsibility for the security of your business—a small business has to show it is investing in cybersecurity and managing its data and IT network with a commitment to security before an insurance broker will consider coverage.
For many businesses, this can be an overwhelming step in the process, but your trusted managed service provider (MSP) should be able to guide you through. For most small businesses, a cyber insurance preparedness checklist is the right place to start. This checklist helps you understand what most cyber insurance companies are looking for and determine where you stand.
Typically, these requirements align with best practices and compliance standards, so even if your organization needs to make improvements, the benefits go well beyond getting insurance coverage. By working with your MSP, you can determine what needs to happen before you even apply for coverage, and where you may need to have documentation showing future improvements planned by your business but not yet in place.
Common cybersecurity insurance checklist buckets include:
- Identity protection and access control
- Backup and recovery readiness
- Endpoint protection and monitoring
- Incident response preparedness
- Security awareness and governance
To learn more about successfully preparing for cyber insurance coverage, check back next week for our blog dedicated to the process.
Get our guide to preparing for cyber insurance
Better yet, reach out to Exigent and let's do a deeper dive into your cybersecurity stance.
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