Is Cyber Insurance for a Small Business Worth the Investment?
The swift advancement of technology is a double-edged sword as threats in cybersecurity have dramatically expanded over the past decade. According to one survey, 43% of SMBs have been attacked by cybercriminals. In 2024, the global average cost of a data breach was $4.88 million, a 10% increase from the previous year.
While big-name companies may be able to survive these events, smaller businesses may not have the capacity to recover from such losses. That is why businesses of all sizes must safeguard themselves with cyber insurance. Still, businesses are left wondering whether an investment is truly worth it.
Pros of Cyber Insurance for Small Business
Cyber liability insurance protects businesses from financial losses should they experience a cyberattack.
1. Financial Protection Against Cyber Incidents
Cyber insurance serves as a financial safety net for businesses, covering costs associated with legal fees, data restoration, and customer notification following a breach. For SMBs with comparatively fewer resources, this could mean the difference between recovery and closure.
2. Safeguarding Reputation and Trust
A breach often leads to a struggle to rebuild customer trust since small businesses may not have the same brand resilience as larger companies. Cyber insurance can help cover public relations expenses and other measures to minimize reputational damage.
3. Encouragement of Best Practices
Some policies incentivize businesses to implement more decisive measures. Insurers may require regular risk assessments, employee training, and adopting advanced cybersecurity tools. Employee training is essential since human error accounts for 88% of attacks—highlighting the need for heightened awareness and mitigation efforts.
4. Customized Coverage for SMB Needs
SMBs have a particular need, unlike larger enterprises, and cyber insurance can be tailored to match the specific risks that a business may face. This ensures businesses aren’t spending too much on coverage they don’t need.
Cons of Cyber Insurance
While the benefits are promising, cyber insurance also has drawbacks that might make business owners reconsider.
1. High Premiums for Comprehensive Policies
One of the most significant disadvantages of cyber insurance is its cost. Premiums can be steep, especially as attacks become more frequent. Businesses with a history of breaches or those storing large amounts of sensitive information may face even higher premiums due to the nature of their business.
Cyber insurance may not be worth it depending on the business, its size, and the level of coverage required. This is especially true for small businesses with a restrictive budget.
2. Exclusions and Limitations
Not all policies are created equal, as some are more comprehensive than others. A basic cyber insurance plan may not cover more novel threats, such as insider attacks or supply chain vulnerabilities. Insider threats pose the greatest risk to organizations; total average cost to resolve an insider threat is $15.38 million. Business owners must review the differences between policies to make the best decision for their company.
3. False Blanket of Security
A cyber insurance policy is not the be-all and end-all of protecting a business. It should only support, not replace, other cybersecurity measures. Businesses that rely solely on insurance without other proactive defenses may find themselves unprepared for the aftermath of an attack.
4. Tedious Claim Processes
Filing a claim can be a complicated and time-consuming process. Businesses may face delays in receiving payouts. To add more insult to injury, an incident can lead to an extended interruption of your business from weeks to months, further burdening an already challenging situation.
How to Decide if Cyber Insurance Is Right for You
To determine whether pushing through with cyber insurance is the right move, SMB owners should consider the following:
Assess the risk exposure: Review the types of sensitive information the business stores and how it’s managed. Some tools assess file footprints and analyze how employees handle sensitive data, which can offer visibility into a business's risk level. Cyber insurance is highly recommended if a business handles a significant volume of customer or financial data.
Understand the potential impacts of a breach: A breach can lead to extensive operational downtime, lost revenue, and damage to reputation. Small businesses with limited resources to soften the blow of these costs are prime candidates for cyber insurance.
Consider current cybersecurity measures: If a business already has solid protections, such as advanced firewalls, encryption, and employee training programs, the policy needed may be less comprehensive and, therefore, less expensive.
Analyze the budget: The premium cost can affect the entire business budget. Before purchasing a policy, it’s essential to weigh the cost against potential financial fallout. Calculate the risk levels first to determine how much coverage is necessary.
Explore policy options thoroughly: Always read the fine print when comparing policy options. Some are inexpensive, with minimal protection, while others are more comprehensive and have a higher price tag. Ask questions about exclusions, deductibles and coverage limits.
Is Cyber Insurance a Worthy Defense?
Small businesses may consider cyber insurance their most valuable investment against attacks, but it’s not a one-size-fits-all solution. Ultimately, it all boils down to assessing risk factors, evaluating security infrastructure, and reviewing policy options. Doing so allows business owners to make an informed decision to protect their operations.
As cyber threats continue to proliferate, one thing is clear—preparation is essential.
