Cyber Insurance For Small Businesses: Why It's Essential

Estimated reading time: 5 minutes

Businesses face a continual threat of cyberattacks, as recent cyberattacks on critical US infrastructure in the Pittsburgh area and healthcare systems nationwide have shown. These attacks can be sophisticated, persistent, and represent a significant threat to every company in any industry. For those in critical infrastructure, a breach doesn’t just affect their bottom line; it poses severe safety risks to their clientele.

Given the inevitability of such threats, the pressing question is not if a business will be attacked but when — and, more crucially, how they’ll respond. No matter the size or industry, every company must implement cybersecurity policies and measures, prepare an incident response plan, and adopt risk mitigation strategies.

The Small Business Cyber Threat Misconception

There is a common misconception among new, small, and mid-sized businesses that they may not be a target for hackers who only go after big corporations or government agencies. This is far from the truth. In today’s world, hackers are constantly looking for easy targets to provide quick gains. Unfortunately, they don’t care about the victim’s identity; they simply focus on the ease of breaking into their systems.

Cyber Insurance For Small Businesses illustrated by a small town main street protected by a blue cybersecurity shield blocking digital cyber threats and data attacks. Does small business need cyber liability insurance is the subject of article.

Is Small Business Cyber Insurance Needed

According to the U.S. Small Business Administration, in 2020, small businesses faced over 700,000 attacks, costing $2.8 billion. Forbes found that 83% of small and medium-sized enterprises are not financially prepared to recover from a cyberattack. Cyberattacks can devastate businesses – and 43% target small businesses. The 424% increase in successful small business attacks between 2022 and 2023 means that all firms need to implement protections.

Local industry, entrepreneurship, and small businesses fuel the economy and employ 61.7 million people – 46.4% of all US workers. They promote innovation, generate new ideas, and launch new industry trends. These businesses have limited resources and may be unable to weather a cyberattack—over half of small businesses that suffer a cyberattack close within six months.

Despite this, 51% of small businesses say they are not spending money on cybersecurity because they don’t think it’s necessary. This is a risky and costly mistake. The likelihood and severity of cyberattacks can be reduced by implementing security measures and training employees. World Economic Forum Analysis found that 95% of cybersecurity breaches can be traced to human error.

Attacks can start by targeting a business’s employees, as untrained, busy, or distracted employees can easily fall for scams. These attacks can be automated using AI chatbots and generative AI technologies. The scammer might pretend to be the employee’s boss, colleague, or contractor and may even know details about the employee and company.

Preventing Cyberattacks

To prevent hacking, businesses must proactively identify and mitigate vulnerabilities. They should implement defensive measures, audit their infrastructure, train employees, conduct cyber drills, and manage cyber risk. Once these proactive measures are implemented, insurance can be used to transfer the residual risk away from the firm.

Many proactive security measures can be readily implemented with limited cost. Endpoint security software, for example, can be installed to monitor computers and other user devices. Multi-factor authentication can protect against password compromise and is available as part of many systems as a turn-key feature. Automating updates and patch installation, managing user accounts and authentication mechanisms, and employee cybersecurity training are also critical. Basic training alone can thwart many attacks by making employees more conscious and less likely to fall for scams.

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The Role of Cyber Insurance For Small Businesses

Proactive measures, while important, are not enough. A small business’s survival after a cyberattack may depend on insurance, which transfers some or all of the residual risk to the insurance company. Typically, cyber insurance provides several benefits. First, the insurer will assess the insured company’s cybersecurity practices, potentially helping it to avoid being successfully attacked. The insurer will also provide response assistance after an attack, using its pre-established network of providers. The insurer will also cover losses such as ransom payments, lost revenues, business downtime, remediation costs, customer notification, third-party liability, and legal fees. An insurer can help expedite attack recovery and increase the likelihood of the business continuing after an attack.

However, cyber insurance may be hard to find. With growing losses, insurers are cutting back on offering policies and limiting what they cover. Because of this, making cyber insurance available to businesses of all sizes should be a priority for regulators and legislative bodies at both the federal and state levels.

The time to act is now. Before the next bakery, bookstore, or boutique becomes another statistic, let’s arm our businesses with the tools, training, and insurance they need to thrive in a digital age.

Dr. Zia Muhammad teaches cybersecurity in the Department of Computer Science at the University of Jamestown (Jamestown, ND, USA). He holds a Ph.D. in Software and Security Engineering and an M.S. in Information Security. Dr. Muhammad has authored numerous peer-reviewed publications, presented at international conferences, and published in leading journals. He regularly contributes expert commentary to media and industry outlets, including The Hill, DC Journal, DarkReading, Scholars Strategy Network, and Cyber Defense Magazine. His research focuses on emerging cybersecurity and privacy threats, with a particular emphasis on cyber insurance. The opinions expressed are his own.

The views and opinions expressed in this guest article are those of the author and do not necessarily reflect the official policy or position of Cyber Insurance News & Information

The Small Business Cyber Threat Misconception

Is Small Business Cyber Insurance Needed

Preventing Cyberattacks

The Role of Cyber Insurance For Small Businesses

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