Cyber insurance can be expensive. Cyber insurance premiums are often expensive and many business owners simply avoid buying cyber insurance due to the cost. Cyber risk is real and with more and more data breaches happening all the time, your digital assets can be in serious jeopardy. Cyber risk is too important to be overlooked due to the premium cost. This article explores 6 reasons why your cyber insurance premium might be so high.
Reason #1: Lack of cyber defenses
The most basic reason for having high cyber insurance premiums is that you aren’t putting in the effort to keep your business safe. This could mean not having good security software, not having enough firewalls, not training employees on security protocols, or having weak password policies. Your premium will reflect this riskiness by being higher than it would have been otherwise.
Reason #2: Loss history
Your cyber insurance premium might be high because your business has been affected by a data breach in the past. If you have a history of cyber losses, your insurance company will see that as a risk. They will assume that your business is likely to be affected again, so they increase your premium.
Reason #3: Newer, evolving risk
Hackers are constantly evolving their methods of attack as well as the tools they use to carry out these attacks. They’re also getting better at accessing bigger and more important data, which makes them capable of doing more damage. Because of this, cyber insurance companies have to keep refining how they estimate the risk of an attack on any given industry.
Reason #4: Your industry is considered high risk
Your cyber insurance premium might be high because your business is in an industry that cyber insurers deem as high risk. A high-risk business is one that is especially susceptible to cyber crimes due to the sensitivity of its data, transactions, and other specific factors. Some of the most high-risk industries are health care, big tech, and finance.
Reason #5: Insufficient or lack of data and analytics
Your cyber insurance premium might be high because your business is new. New businesses will have less data and analytics for the insurer to analyze and assess the risk. Therefore, your premiums might be higher to start. However, your premiums may decrease over time as more data becomes available.
Reason #6: Cyber insurance is new to the market
When you buy a cyber insurance policy, you’re helping to create the first generation of cyber insurance pricing. Cyber insurance is brand new and isn’t priced like traditional insurance. The pricing is based on applied actuarial science, which uses statistical analysis to figure out the likelihood of events. If you look at how other industries have handled their coverage, you’ll find that as they gain more information, they are able to adjust their rates accordingly. For instance, auto insurance companies can determine your risk by looking at your driving record—they know how many miles you drive each year and how often you’ve been in an accident. Cyber insurers don’t have this kind of data yet, so they must rely on other forms of risk mitigation such as security audits and incident response plans.
Overall, cyber insurance definitely has value and is something that every business should seriously consider. However, the price tag can be daunting, especially in a brand new category of insurance. Cyber insurance doesn’t have to cost you an arm and a leg. By knowing why your cyber insurance premium is so expensive, you will be better equipped to make changes to your business for a better, lower premium.