Cybersecurity vs Cyber Insurance: What’s the Difference and Why Your Business Needs Both?

Imagine you own a commercial building, one morning you arrive to find someone had broken in overnight and made away with some equipment. You are perturbed but not overly worried because you have insurance, which means the cost of replacing the stolen equipment and even repairing the damage caused is covered.

Now, knowing you have insurance, do you go ahead to leave the locks from your doors? You definitely wouldn’t do that because you still have the responsibility of protecting your premises. 

This is the core difference between cybersecurity and cyber insurance. Many business owners confuse the two terms and this reflects in their poor practices in securing their businesses.

They assume that having a cyber insurance policy means they’re protected from cyber threats, when in reality, cyber insurance and cybersecurity serve two very different purposes, and confusing one for the other can leave your business exposed when it matters most.

Cybersecurity is a proactive strategy a business owner takes to protect their business data and technology from cybercriminals. Cybersecurity is done to stop potential attacks from happening. Cyber insurance on the other hand is a reactive strategy to protect a business from financial and legal implications in the event that an attack occurs. The insurance would identify the source of attacks, legal costs and every other cost required to restore business operations and finance the restoration of these business operations.

Just as property insurance doesn’t prevent storms from damaging a building, cyber insurance doesn’t prevent hackers from launching attacks. Its role begins after the incident has already occurred. This distinction is important because many business owners mistakenly expect their insurance policy to provide protection that only cybersecurity can deliver.

As a business owner, you may wonder why this conversation is important since cyber insurance is there to help you out financially if an attack occurs. Well, something profound has happened over the years. Getting cyber insured in the past used to be as easy as filling a form. These days, many insurers ask questions pertaining to the cybersecurity practices of your business before they issue a policy or determine your premium. 

They may ask whether your business uses multi-factor authentication, how often you back up your data, whether employees receive cybersecurity awareness training, how quickly security updates are installed, or whether sensitive information is encrypted.

All these questions are aimed towards identifying how risky your business is, that is, how prone your business is to a cyberattack. Businesses with stronger cybersecurity practices generally present lower risk to insurers because they’re less likely to experience costly claims; and in some cases, failing to maintain the security controls outlined in your policy could even affect coverage after an incident. In other words, insurers expect businesses to take reasonable steps to protect themselves before relying on insurance to absorb the financial impact of an attack.

This reason already tells you as a business owner that you need to take your cybersecurity practices seriously as a business owner. However, there are more reasons to take your cybersecurity practices very seriously as a business owner, because while cyber insurance can help you cover the financial and legal costs of a cyberattack, there are some things it cannot guarantee or restore for you. Some of these things include:

1. It cannot restore your reputation: When your clients find out their data was exposed in a breach, the damage to their trust in you is immediate and personal. No insurance payout changes the fact that their information was compromised under your watch, and some clients will stay, while others will not. Reputational damage spreads so fast, and has a lasting and difficult consequence on your business.   
2. It cannot restore time lost: If your business is hit by ransomware that locks your files and demands payment for the key, your insurance may help cover the cost of the ransom or the recovery effort. But while that process plays out, your business may be completely unable to operate. Client work gets stalled, deadlines are missed because staff are unable to access the systems they need. The financial cost of that downtime adds up quickly, and this operational disruption comes with consequences your business has to deal with regardless of what your cyberinsurance has to cover.
3. It cannot guarantee a quick recovery. Insurance claims take time; it’s not as easy as filling a form, and getting a credit alert. Assessments need to be made, documentation needs to be submitted, adjusters need to review the situation. In the meantime, your business still needs to function, and if you do not have the right cybersecurity infrastructure in places such as proper backups, tested recovery processes, managed IT support, the gap between the incident and the insurance payout can be a very difficult period to navigate.
4. It cannot keep you out of trouble with regulators. Depending on your industry, a data breach may trigger regulatory obligations: notifications that must be sent, compliance standards that must be demonstrated, timelines that must be met etc. Insurance can help cover the cost of fines that follow, but it does not absolve you of the obligation to meet those requirements, and like we discussed in our post on cybersecurity compliance, regulators are not interested in whether you had insurance or not, they are interested in whether your business adhered to its obligations to protect the data it held and non-compliance would definitely trigger legal implications. 

At this point, you may begin to think that cybersecurity is more important than cyber insurance. However, they are not alternatives to each other. Neither are they competing options where you choose one or the other. They are two completely different things that serve two completely different purposes, and your business needs both of them.  

Cybersecurity protects your business from a cyberattack, and if a cyber attack ever happens despite your best efforts, cyber insurance is the safety net that protects your finances. 

If your business currently has cyber insurance and feels protected, that is a good start. But if your business does not yet have a proper cybersecurity strategy in place, that is,  the right tools, the right policies, the right partner watching over your environment, then your insurance is there to cover the aftermath of a situation that is totally preventable.

At StonePoint Technology Partners, we help small and mid-sized businesses build the kind of cybersecurity foundation that protects them from different forms of cyberattacks. If you would like to understand where your business currently stands and what it would take to build a genuinely protected environment, we would love to have that conversation.

Send us an email at Info@stonepointtech.com or call us at (727) 478-7355. We are here to help.