July 31, 2018

Cyber Liability Insurance – Why You Need It


In the past few years, cyber liability insurance has become increasingly popular due to the growing number of cyber security incidents, such as data breaches, hacking, extortion, data destruction and denial of service attacks. Unfortunately, in the event of a cyber incident, such as a data breach, your business may be liable for damages, especially if cybercriminals manage to steal your customers’ data, such as their social security numbers. This is where cyber insurance comes in handy. As the name implies, cyber insurance is a type of protective insurance policy specifically designed to protect you and your business from the risks associated with information technology activities and technology. It is worth noting that the traditional general liability policies do not generally such risks. With that in mind, here is some more information on this topic.

Types of Coverages

Although the type of coverages tends to differ from one insurance provider to the next, the types of coverages offered under cyber liability insurance can be divided into two broad categories. These categories include first-party coverages and third-party coverages.

First-party Coverages

First-party coverage applies to any losses sustained by your business directly, such as damage to your business’s electronic records caused by a cyber attack. Additionally, these policies may also cover certain expenses, such as notification costs. It is worth noting that you can deduct first-party coverages from your taxes. Example first-party coverages include:

• Damage or loss of electronic data – Most policies generally cover the costs associated with restoring or recovering lost data, including the costs of hiring external expertise. However, these policies only cover losses resulting from the risks listed in the policy documents. Such risks may include a hacker attack, denial of service attack or a virus attack.

• Loss of income — In most cases, first-party policies offer protection against loss of income. For instance, if a covered peril causes your computer system to fail, your first-party policy may pay you some money to help you mitigate your losses and help you to re-establish your operations. It is important to note that the loss of income protection offered under a cyber liability insurance policy is different from the loss of income offered under a commercial property policy. In essence, the former protects your business against the losses resulting from damage to your computer system, whereas the later covers your business against losses resulting from physical damage to your business premises and or any other covered property, excluding your business’s electronic data.

Third-party Liability Coverages

Third-party coverage, on the other hand, applies to claims made against your business by third parties, such as your customers or a member of the public who is not your employee. For instance, a third-party policy would come in handy in the event your clients decide to sue your business for negligence following a data breach incident. More specifically, third-party liability coverages cover damages and the legal costs of defending your business against such lawsuits. In some cases, such coverages are subject to a retention. Examples of third-party liability coverages include:

• Network security liability — If your business losses customer data due to a cyber attack, this policy would help protect your business against lawsuits filed by the affected customers. Of course, to enjoy this protection, the data loss must result from the risks listed on the policy.

• Electronic media liability — This type of cyber insurance liability protects you and your business against acts such as domain name infringement, copyright infringement, libel, defamation, and slander. However, to enjoy the protection offered by this policy, such acts must result from your publication of digital data on the internet.


Cyber liability insurance is an insurance product designed to protect both businesses and individuals from Internet-based risks, such as data breach and virus attack. The most common types of cyber liability insurance include first- and third-party coverages.