Think you don’t need Personal Cyber Insurance? Think again.
Since the beginning of 2021, The Starr Group has seen several of its customers fall victim to cyber crime. In July, an employee at a company opened an email that seemed legitimate and clicked on a link or attachment. That action launched a ransomware program which debilitated their business’ entire operation. Our customer is still spending hundreds of thousands of dollars to recover data and repair the breach. The cost of lost business alone is staggering.
Not so long ago, the best insurance against cyber crime was individual diligence and knowing the red flags of a bogus email. We know that’s not the case anymore. More recently, another customer fell victim to a cyber crime that involved a financial institution which had been infiltrated by cyber criminals lying in wait to intercept communications and reroute transactions to a bogus bank. The customer suffered an immediate personal loss of $300,000. They are also faced with future legal fees attempting to recover their money, if it is even possible at all to identify and bring charges against the parties responsible for the fraud.
Personal Cyber Insurance
One way we advise our customers to protect themselves financially against these risks is by purchasing a personal cyber insurance policy, part of a growing insurance market for cyber protection. This market is in its infancy, but there are some ways consumers can get personal cyber insurance through their home insurance policies.
The Starr Group advises individuals to consider purchasing some level of personal cyber insurance if their homeowners insurance provides the option. In 2020, the FBI’s Internet Crime Complaint Center received almost 800,000 complaints of cyber crimes, with a total estimated cost of $4.2 billion. That comes out to an average cost of over $5,300 per cyber crime.
More and more insurance carriers are offering cyber insurance to individuals and their families as an add-on to standard home insurance policies. Several offer it as part of high-value home insurance policies, which have target clients with home values approaching $1 million or more. Some insurers offer the option for a level of identity theft protection.
As the personal cyber insurance market continues to expand, more cyber policies with reasonable limits are becoming an affordable supplement to individuals’ insurance coverage for this rising threat.
No two personal cyber insurance policies are exactly alike, but most generally cover expenses under at least three categories: personal and home protection, extortion and financial loss from fraud.
Cyber personal and home protection coverage (also called cyber attack coverage)
Also called cyber attack coverage, this coverage protects the policyholder against the financial consequences of personal online attacks, also called cyber bullying, or attacks against the integrity of your home systems. For example, if cyber bullying results in the wrongful loss of their job, this feature would cover lost salary up to policy limits.
If a cyber attack results in people being unable to access their home or needing to replace an electronic device, the coverage ensures that they’re reimbursed for the costs associated with resolving the event.
Cyber extortion coverage
Cyber extortion is when online criminals threaten the release of sensitive personal data or prevent individuals’ access to their technology devices in return for a ransom. A personal cyber insurance policy reimburses individuals for payments they made under the duress of an extortion threat. It may also cover the costs of conducting an investigation to diagnose the cause of the event and help prevent such an occurrence in the future.
Cyber financial loss from fraud coverage
Coverage for financial loss or fraud as a result of a cyber event can refer to a wide range of scenarios. These include identity theft, stolen bank funds or fraudulent use of credit cards or checks. Traditionally, this type of protection has been available as part of a standalone identity theft coverage policy, an identity theft endorsement for a homeowners insurance policy or identity theft resolution assistance through a credit card company. But identity theft coverage alone does not protect against the wider range of risks posed by cyber security threats.
On the homeowner side, the customizability gives policyholders the option to pay as little as $127 per year for coverage of up to $25,000 in damages. Conversely, more conservative homeowners concerned about the vulnerability of their personal data can get covered up to $250,000 in damages for $577 per year.
What else might be covered?
Many cyber insurance policies cover policyholders for the consequences of the event and not just the event itself. For example, if cyber bullying results in your wrongful termination from work or a false arrest, you’ll be covered for related expenses, such as lost wages or the costs of being held in custody, up to policy limits.
Cyber extortion: Reimbursement for money paid to terminate or end an extortion threat and for investigation into its cause.
Cyber bullying: Expenses incurred from cyber bullying, ranging from psychiatric services to lost salary from wrongful termination.
Crisis management: Expenses incurred by a service provider to minimize the damage to the covered policyholder’s reputation after a cyber attack or extortion.
Data restoration: Expenses incurred by a service provider in recovering lost data after a cyber attack or extortion.
Coverage with extra high limits
One major carrier provides cyber insurance with extra high limits for high-net-worth homeowners concerned about cyber threats. High-value homeowners and renters insurance policyholders can add a personal cyber insurance endorsement to their policies. Coverage under this endorsement is split into five categories: data recovery and system restoration, cyber extortion, fraud and cyber crime, breach notification costs and cyber protection third-party claims. However, coverage levels for these individual categories can’t be customized. Policyholders select between five overall limits: $100,000, $250,000, $500,000, $1 million and $2 million. The maximum $2 million limit is a good fit for wealthy individuals who believe they are at risk of a major cyber security threat.
Coverage provided by its five categories of cyber threats is defined as follows:
Cyber extortion: Professional assistance in handling an extortion threat and payments (with prior approval from the carrier) in response to a threat.
Fraud and cyber crime: Costs of identity theft, unauthorized use of bank cards, phishing attacks or cyber attacks.
Data recovery and system restoration: Reimburses the cost of data restoration after unauthorized use or a malware attack.
Breach notification costs: Covers costs resulting from a privacy breach. Can include attorney costs, IT professionals and mailing notification to affected parties.
Cyber protection third-party claims: Coverage for legal expenses and damages from lawsuits stemming from privacy breaches.
The content of this article is based on industry research and resource opinion alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners. Allow your Risk Advisor at The Starr Group to review your current policy today. We can provide options for covering your high-value assets.