Why Every SME Should Have Cyber Insurance?

Cyberattacks will continue to increase with advances in technology, and no business, regardless of its size, is safe from such attacks. These attacks may begin with something like a phishing email or a password attack. Such an attack can cause significant damage and dissatisfaction among clients. The impact of a cyberattack on small enterprises will be even more challenging because they do not have enough funds to cover possible losses.

Here is where cyber insurance may come into play. This insurance can assist with managing certain losses and recovery costs following a cyber breach. In this article, we discuss why cyber attackers target SMEs, the risks involved, how cyber insurance in India works, and its relevance.

Why Are SMEs Becoming Targets for Cyberattacks?

Small and medium enterprises usually think that hackers target major corporations, banks and government organisations. This belief is increasingly unsafe.

• SMEs possess valuable information while lacking the necessary means to secure it. They tend to keep information about customers, staff, payments, finance, and company documentation on the internet. On the contrary, SMEs might not have cybersecurity specialists and funds to buy cybersecurity tools.

• CERT-In announced an attack on MSMEs through methods such as ransomware, DDoS, website defacement, data breaches, and malware infections. CERT-In also released security measures for MSMEs to secure their networks.

• The overall cyber threat environment in India also reveals why businesses must take the matter seriously. The current situation with cybersecurity threats in India also shows the necessity of taking care of the issue.

What Cyber Risks Can an SME Face?

The cyber threat goes far beyond one person hacking a computer system. There are different types of threats that an SME can face.

• Phishing/social engineering: Employees can receive fake emails, calls, or messages to obtain passwords or make payments.
• Ransomware: Hackers can encrypt business data and files and demand money for access. This results in the inability to perform any business operations.
• Data breaches: Confidential customer, employee, or company data can be compromised or stolen without the owner’s permission.
• Malware: It can cause harm to the systems, information theft, or unauthorised access to the systems.
• Business email compromise: Hackers can hijack an email address or impersonate senior management to request payment.
• Website/system attack: The company’s website, application or even internal systems can be attacked.
• Third-party risks: The cyber risk faced by an SME may also extend to the risk experienced by its supplier, software provider, or any other business partner.

Such cyber risks have become even more important with increasing dependence by SMEs on cloud computing, digital payments, remote work, and e-services.

What happens to an SME after a cyberattack?

In most cases, the first thing that happens is panic. However, the actual economic implications may persist even after the attacks have been brought under control. For example, there is a small online company whose computer systems are hacked by a ransomware attack. This company may be unable to conduct operations such as order processing, accessing customer information, and contacting suppliers. Employees will be unable to perform tasks, while clients will become curious about the delays.

Afterwards, the costs follow. In addition to the costs for the security team investigation and system repair, the company will have to pay for legal counsel and PR management. This is why the financial consequences of a cyberattack may far exceed the cost of restoring the computer and retrieving a single file. This is where cyber insurance plays an important role since it enables companies to cover several of these costs depending on the coverage and policy of the company.

How Can Cyber Insurance Help an SME?

Cyber security insurance can be considered a financial cushion against cyber risks. It is not a substitute for good cybersecurity practices, nor does it guarantee that a breach will not happen. Rather, it helps the organisation deal with the situation if it arises.

Coverage may be helpful for things like:

• Investigation and forensic expenses
• Data and system recovery
• Business interruption losses
• Legal expenses
• Customer notification costs
• Crisis management and public relations
• Cyber extortion-related expenses
• Certain third-party claims
• Certain regulatory or liability-related costs, where covered

The actual coverage depends on the specific policy, but companies should not always expect all kinds of cyber losses to be covered by all cyber policies. The major benefit of such a product is that the SME will not have to bear the entire bill itself. The appropriate coverage will also enable business people to get professional help when they do not really know what to do next. Business cyber insurance policies can go beyond just providing compensation to the affected company. They can form part of a general incident response strategy.

Which SMEs Should Consider Cyber Insurance?

Any business that uses computers, digital storage of data, electronic payments, or internet-based operations may suffer from cyber exposure. However, some may have a greater need for cyber insurance for small businesses. Such businesses are:

• E-commerce companies
• IT and software businesses
• Digital marketing agencies
• Healthcare businesses
• Financial and professional service firms
• Educational companies
• Manufacturers using connected systems
• Businesses handling large amounts of customer data
• Companies heavily dependent on cloud software
• Businesses that make or receive digital payments

Startups and small businesses may also find it beneficial because they usually have limited financial capabilities to cope with such a huge unexpected loss. But the question is not about how large the company is. The right question is about “how much the business will suffer from the loss of the data and system.”

How Much Cyber Insurance Coverage Does an SME Need?

There is no exact coverage amount that applies to every SME. A small business that manages only a little information and can operate without relying on automation will be very different from an online company managing thousands of customer transactions monthly.

When determining how much commercial cyber insurance coverage you need, you should take into account:

1. Loss of revenue: What potential losses would the company suffer if the operation were to come to a halt for several days or weeks?
2. Information assets: What kind of information – related to customers, employees and finances – is owned by the business?
3. Dependency on technology: How dependent is the company on its website, software, cloud and online payments?
4. Cost of recovery: How much money would it take to investigate an attack and restore and recover information?
5. Liabilities: Can customers or partners be expected to make a claim following a cyberattack?
6. Security in place: Which cybersecurity controls have been set up already?
7. Contractual requirements: Are there important clients or partners who mandate cyber insurance?

The small business owner should not choose the policy with the lowest premium but should study the limitations, deductibles, exclusions, sub-limits and terms of the policy.

Is Cyber Insurance Worth It for an SME?

In many cases, the answer is yes, especially where the SME uses a lot of technology or handles sensitive data. The cost of the cyber security insurance policy has to be compared against the cost of the actual event. The cost of the actual event may include losses due to downtime, recovery costs, legal suits, lost revenue, and loss of reputation. This means that in a small firm which does not have much money, even a minor incident would put a lot of pressure on the business.

For SMEs looking for cyber insurance in India, it is important to compare before deciding to purchase the cheaper coverage available. Prior to buying any policy, firms have to make sure about the coverage, what is excluded from the cover, the claims process, and the necessary security measures.

Conclusion

In conclusion, even small organisations can experience cyber attacks with similar impacts in terms of financial loss, time loss, and reputational damage. Cyber insurance can play a vital role in managing costs that could arise due to a cyberattack for such an organisation. However, insurance must go hand in hand with good cybersecurity practices and cannot be used as a substitute for it. SafeTree provides a number of good options when it comes to cyber insurance for businesses in India. All that needs to be done is to identify the risks involved and choose the best coverage options.

Published by: A2V Insurance Brokers Pvt. Ltd. (SafeTree)

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