Don’t Confuse Cyberinsurance with Cybersecurity: Understanding the Key Differences to Protect Your Agency

Cyberinsurance and cybersecurity are two critical aspects of protecting your agency or small business from cyber threats, but they are not the same thing. While both are important, they serve different purposes and should not be confused with each other. In this blog, we will explain the differences between cyberinsurance and cybersecurity, why they are not the same, and why an organization should not rely on one to substitute the other.

Cybersecurity is a set of practices, technologies, and processes designed to secure an organization’s digital assets from cyber threats. This includes implementing firewalls, conducting regular security audits, and educating employees on best practices for cybersecurity. The goal of cybersecurity is to prevent cyber threats from occurring in the first place and minimize the impact of an attack if one occurs.

Cyberinsurance, on the other hand, is a form of insurance coverage designed to protect businesses from the financial losses resulting from cyber attacks. It can help cover the cost of responding to an attack, such as legal fees, public relations expenses, and the cost of restoring damaged systems. In the event of a successful attack, cyberinsurance can provide the financial resources a company needs to recover and get back to normal operations.

In 2020, customers opting in for cyberinsurance rose from 26% to 47%. With the cost of cybercrime doubling in the last few years, it’s not a surprise that cyberinsurance is becoming a necessity.

However, it is crucial to understand that cyberinsurance is NOT a substitute for cybersecurity implementation.

Cyberinsurance can only provide financial protection after an attack has occurred and cannot prevent cyber threats from happening. The best way to minimize the risk of a cyber attack and reduce the potential for financial loss is to invest in strong cybersecurity measures. An organization that relies solely on cyberinsurance for protection is still vulnerable to cyber attacks, and the resulting damage can be significant.

For example, let’s consider a company that experiences a data breach. The company has a cyberinsurance policy, so it expects to receive compensation for the expenses incurred during the breach. However, the company’s lack of cybersecurity measures has allowed the attackers to access sensitive information, and the company is now facing regulatory fines, legal fees, and a damaged reputation. Their customers are notified of the breach, as required by law, and they are extremely unhappy that their information has been stolen. The company is in shambles trying to recover what is left of their computer systems after being locked out by hackers. They file for their insurance policy, but because the company did not adequate cybersecurity protections in place to prevent the attack, cyberinsurance will not cover most of the company’s damage claim.

Cyberinsurance typically requires policyholders to demonstrate that they have implemented best practices in cybersecurity, such as regularly updating software, using strong passwords with Multi-Factor authentication, and encrypting PII data before they will provide coverage payments. In other words, cyberinsurance should be seen as a complement to a strong cybersecurity program, not as a replacement.

The threat of cyberattacks and hackers in 2023 is a very real and growing concern for businesses of all sizes. According to recent statistics, the frequency and severity of cyberattacks continues to increase, with cybercrime expected to cost the global economy over $11.5 billion annually by 2025. In 2023 alone, it is estimated that a business will fall victim to a cyberattack every 11 seconds. Hackers are using sophisticated methods to steal sensitive information and cause disruption, and the rise of cloud computing and Internet of Things (IoT) devices has created even more opportunities for attackers to access sensitive information. These facts highlight the importance of businesses taking proactive measures to protect themselves from cyber threats, including investing in strong cybersecurity measures, conducting regular risk assessments, and obtaining adequate cyber insurance coverage.

Here are some examples of cybersecurity best practices for small businesses based on current state and federal level cybersecurity regulations:

Assess Risks: Conduct annual, thorough risk assessments to identify potential vulnerabilities and prioritize the protection of sensitive information.
Develop a Written Information Security Plan: Create a written information security plan (WISP) to outline the steps a business will take to protect sensitive information.
Implement Technical Safeguards: Implement technical safeguards, such as firewalls, antivirus software, encryption, and secure passwords, to protect against unauthorized access to sensitive information.
Train Employees: Provide regular cybersecurity training to employees to ensure they understand best practices for protecting sensitive information and how to recognize and respond to potential threats such as social engineering and phishing.
Limit Access to Sensitive Information: Limit access to sensitive information to only those employees who need it to perform their job duties.
Regularly Monitor Systems: Regularly monitor systems and networks to detect and respond to potential threats.
Report Data Breaches: Report data breaches promptly to the appropriate authorities and affected individuals as required by state and federal laws.
Disaster and Recovery Backup: Backup all critical systems and data, and routinely test the ability to recover systems from backup.

In conclusion, businesses must understand the differences between cyberinsurance and cybersecurity and should view them as complementary components of a comprehensive cyber defense strategy. A strong cybersecurity program is the best way to prevent cyber attacks, while cyberinsurance provides a safety net for the financial losses that can result from an attack.

Curious about if your agency or small business can stand up to a cyberattack? Even if you are tempted to think “we’re fine” or “I have someone doing my IT already”, we can prove to you that your data is not fully secured. Our comprehensive, and confidential FREE Cybersecurity Risk Assessment will show you where you are vulnerable to hackers, guaranteed. Don’t become a victim. Schedule here motiva.net/risk or call us at 646-374-1820.

Walter Contreras

Walter Contreras has over 25 years of experience in information technology, including cybersecurity, with a focus on the Insurance Industry. As both a computer scientist and a graduate of the Columbia University Business School’s Executive MBA program, Walter understands how the world’s digital transformation is impacting small and medium businesses. His mission is to deploy information technology to protect and empower entrepreneurs.