With the constantly rising number of cyberattacks, cybersecurity has become a top priority for businesses of all sizes. For managed service providers (MSPs), ensuring their clients’ data and systems are secure is crucial — not just for their clients’ sake, but for their own liability as well.
This is where cyber insurance comes into play. As cyberthreats become increasingly advanced and common, cyber insurance has evolved from a luxury to a necessity for MSPs. But what is cyber insurance, and what does it protect against?
We’ll break down everything you need to know, from its definition to different types to how you can prepare for a policy and understand the liabilities involved.
What is cyber insurance?
Cyber insurance, also known as cyber liability insurance, is a type of insurance designed to protect businesses against the financial risks associated with cyberattacks and data breaches. These policies cover various aspects of cyber incidents, including the costs of responding to a breach, legal fees, public relations efforts, and even potential regulatory fines.
The growing prevalence of cyberthreats, such as ransomware, phishing attacks, and data breaches, has made cyber insurance increasingly popular among businesses. For MSPs, who often manage sensitive client data and IT infrastructure, having a robust cyber insurance policy is essential. Not only does it provide a safety net in the event of an attack, but it also demonstrates to clients that the MSP is proactive and responsible in managing cybersecurity risks.
In short, cyber insurance helps you mitigate the financial impact of cyber incidents, allowing you to focus on what you do best: providing top-tier services to your clients.
Different types of cyber insurance policies
Cyber insurance policies are not one-size-fits-all; they come in various forms to address the diverse risks businesses face. Here are the most common types:
- First-party coverage: It covers direct losses to the MSP itself and includes costs related to data breaches, such as data recovery and restoration, notification and credit monitoring services for affected clients, legal fees and public relations efforts, and business interruption due to cyber incidents.
- Third-party coverage: This coverage protects you from claims made by clients or other third parties affected by a cyber incident, including legal defense costs if a client sues the MSP for failing to prevent a data breach, settlements or judgments related to client claims, and regulatory fines and penalties.
- Technology errors and omissions (E&O) insurance: Though not exclusively a cyber insurance policy, E&O insurance often intersects with cyber risk coverage. It covers you in cases where a service failure or error leads to a client’s financial loss, which originated from a cybersecurity incident.
- Network security and privacy liability insurance: This policy addresses liabilities related to network security failures, including unauthorized access, data breaches, and privacy violations. It often covers both first-party and third-party costs.
- Ransomware coverage: Some policies offer specific coverage for ransomware attacks, including the costs of paying ransoms (where legally permitted), negotiating with cybercriminals, and restoring data.
On average, small to mid-sized MSPs can expect to pay anywhere from $1,000 to $10,000 annually for a basic cyber insurance policy. More comprehensive coverage, especially for larger organizations or those with higher risk profiles, can push costs upwards of $50,000 per year or more.
That said, there are many factors that influence policy cost, including business size and revenue, industry risk level, claims history, and coverage limits and deductibles.
Who offers cyber insurance for MSPs?
As the demand for cyber insurance grows, many insurance companies have developed specialized policies tailored to the unique needs of MSPs. Here are a few prominent cyber insurance providers that offer policies specifically tailored for MSPs in the United States:
- Coalition: Offers a comprehensive approach with pay-on-behalf coverage, pre-claims support, and customized policies designed to tackle emerging digital threats, including those from AI and deep fakes.
- Chubb: Provides extensive services for incident response planning, staying ahead of software vulnerabilities, enhancing front-line defenses, and preventing malicious activities from infiltrating and spreading through your network.
- AIG: Assists clients in understanding and preparing for evolving cyberthreats, offering guidance on mitigating risks and reducing the chances of a security breach.
- Zurich North America: Includes broad coverage for significant security threats, such as cyber extortion, data exfiltration, social engineering fraud, and malicious acts by rogue employees.
- Travelers: Features a dedicated HIPAA Coach to help you implement effective measures for protecting protected health information (PHI) and preventing data breaches.
Cyber insurance questions to ask your provider
When considering cyber insurance, ask the following questions to ensure you get the right coverage:
- What specific risks does the policy cover?
- What are the exclusions or limitations of coverage?
- What is the policy limit and deductible?
- Are there any requirements for maintaining coverage?
- How do you (the insurer) handle claims, and what is the process?
How to get ready for a cyber insurance policy
Securing cyber insurance involves more than just picking a policy — it’s about ensuring your MSP business is well-prepared to meet the requirements and benefit fully from the coverage. Here’s how you can get ready for a cyber insurance policy:
1. Assess your current cybersecurity measures
Start by evaluating your existing cybersecurity practices, including firewalls, encryption, and intrusion detection systems. Conduct a thorough security assessment or penetration test to identify any vulnerabilities in your system.
2. Document your cybersecurity policies and procedures
Ensure you have up-to-date documentation on your cybersecurity policies, such as incident response plans and data protection procedures. Keep detailed records of your practices and any recent updates or changes.
3. Review your IT infrastructure
Make a comprehensive list of all IT assets, including hardware, software, and network configurations. Ensure all systems are up-to-date with the latest patches and security updates. Also, consider using the latest vulnerability management practices.
4. Prepare required documentation
Obtain a recent cybersecurity audit report from a reputable firm and document any past security incidents or breaches, along with measures taken to address them.
5. Evaluate coverage needs
Assess the specific risks associated with your business to determine necessary coverage limits and types. Consider consulting with an insurance broker specializing in cyber insurance to tailor the policy to your needs.
6. Implement risk management practices
Train and educate your staff about cybersecurity best practices and how to recognize potential threats. Keep your risk management practices current with ongoing security training and system updates.
7. Apply for the policy
Complete the cyber insurance application accurately, providing all required information about your cybersecurity measures and business operations. Submit the necessary documentation, including cybersecurity policies, audit reports, and incident history.
Also, don’t forget to carefully review the policy terms, including coverage limits, exclusions, and deductibles. Discuss any (and all) questions or concerns with your insurance provider to ensure you fully understand your coverage.
What MSPs need to know about liability
MSPs play a crucial role in today’s technology-driven world. They serve as essential business partners — offering a wide range of IT services and solutions — and help organizations optimize their technology infrastructure, improve efficiency, and focus on their core competencies. With this increased responsibility comes the potential for significant liability risks, such as:
- Contractual liability: This arises from agreements between MSPs and their clients. Breaches of contract, such as failing to deliver services or providing substandard work, can lead to legal action and financial penalties.
- Negligence liability: MSPs can be held liable for negligence if they fail to exercise reasonable care in their services, resulting in harm to their clients or their property.
- Vicarious liability: MSPs may be liable for the actions of their employees if those actions cause harm to others.
- Data breach liability: In the event of a data breach, MSPs can face significant liability for the loss or theft of sensitive client data.
Also, MSPs need to be aware of copyright, patent, and trademark laws to avoid infringing on the intellectual property rights of their clients or others.
Cyber insurance coverage and exclusions
In addition to the liabilities, MSPs should be aware of the common coverage and exclusions of cyber insurance policies. This prepares MSPs for the liabilities they might have to take care of. Cyber insurance policies generally provide coverage for the following:
- Data breaches: Costs associated with data breach notification, credit monitoring, and data recovery.
- Business interruption: Losses incurred due to the disruption of business operations caused by a cyber incident.
- Cyber extortion: Costs related to ransomware attacks, including ransom payments (where legally permissible) and negotiations.
- Legal fees: Expenses for legal defense and settlements related to data breaches, privacy violations, and regulatory fines.
- Public relations: Costs for managing the public relations impact of a cyber incident, including communications and reputation management.
While cyber insurance provides extensive coverage, there are some common exclusions you should be aware of:
- Intentional acts: Losses resulting from intentional acts or fraud committed by the insured or their employees.
- Pre-existing vulnerabilities: Issues arising from known vulnerabilities that were not addressed before the policy’s inception.
- War and terrorism: Damages resulting from acts of war, terrorism, or politically motivated attacks.
- Unencrypted data: Some policies may exclude coverage for breaches involving unencrypted data if encryption was required but not implemented.
Also, keep an eye out for regulatory fines and penalties coverage — some policies don’t cover that. Understanding these coverage details can help ensure you’re adequately protected and aware of any gaps that may require additional risk management or separate coverage.
Bottom line: cyber insurance for MSPs
Cyber insurance is a vital component of a comprehensive risk management strategy for MSPs. As cyberthreats continue to evolve and pose significant risks, having the right cyber insurance policy can provide essential protection and (what they say) peace of mind. It helps cover the financial impacts of data breaches, business interruptions, and other cyber incidents, ensuring you can recover more swiftly and effectively.
Investing in cyber insurance is not just about protecting against potential losses but also demonstrating a proactive commitment to cybersecurity and risk management.
Learn about the best email security software for MSPs to further evaluate and manage potential risks.
Cyber insurance for MSPs: FAQs
What is cyber liability insurance?
Cyber liability insurance protects businesses from financial losses associated with cyberattacks and data breaches. It covers a range of expenses, including data recovery, legal fees, business interruption, and public relations costs.
Who needs cyber insurance?
Cyber insurance is essential for any business that handles sensitive data or relies on digital systems. MSPs particularly need this coverage due to their role in managing clients’ IT infrastructure and data. That said, businesses of all sizes and industries should consider cyber insurance.
How much does cyber insurance cost?
The cost of cyber insurance can vary widely based on several factors, including the size of the business, industry risk level, and the extent of coverage you need. On average, small to mid-sized businesses may pay between $1,000 and $10,000 annually for a basic policy, while larger organizations or those with higher risk profiles may see costs exceeding $50,000 per year.
How can I determine the right coverage limits for my business?
Determining the right coverage limits involves evaluating your business’s specific risks, including the amount of data you handle, the nature of your services, and your industry’s risk level. If needed, consider consulting with an insurance broker specializing in cyber insurance to assess your needs and get the right coverage.