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Does Cyber Insurance Cover Business Interruption Costs?

Caeva O'Callaghan | December 15th, 2020


Does cyber insurance cover business interruption costs?

Cyber insurance can help pay for the fallout after a data leak or cyber attack. But will it cover business interruptions?

Yes. It may not come as standard, but any cyber insurance policy worth its salt will cover business interruption costs.

Business interruptions can be fatal to your operations. For this reason it is essential to make sure interruption costs are included on your policy.

In this article, we’ll cover questions such as:

  • What is business interruption cover?
  • Will my cyber insurance pay for loss of business?
  • If a data leak occurs, what does my cyber insurance cover?

Cyber insurance covers a number of matters you may not be immediately familiar with. It’s a relatively new field in the insurance industry, so it helps to get up to speed with how it all works before you take out a policy.

What is a business interruption?

An interruption in your business, in insurance parlance, means an unplanned hiatus or reduction in trading while you get matters under control. Cyber attacks can lead to serious disruptions in how you communicate with clients, handle your daily work and process payments. This is why cyber crime is so dangerous, as it can majorly hinder businesses overnight.

Business interruption coverage has existed as an element of property insurance policies for over a century. Over those years, property insurers have converged on common forms of policy wording to insure a business’s loss of business income during the indemnity period after an insured event. The terminology you need to look for here in Ireland is “Gross Profit”.

Identifying the impact on your business in terms of Gross Profit helps your insurance company provide interruption cover from the top down. In other words, you have cover for any earnings less savings.

Business interruption loss is calculated as Reduction in Turnover and Increase in Cost of Working. For example, a cyber attack could reduce your turnover as potential customers are turned off by the news of your recent attack. Also, hiring a cyber security consultant to make sure it doesn’t happen again would increase your cost of working.

What liabilities does cyber insurance cover?

Cyber insurance covers a number of liabilities. These fall into the categories of first party, third party, and loss of income liabilities.

1. First party liabilities cover anything relating to yourself and your business, such as data recovery, crisis communications, ransom payments.

2. Third party liabilities cover costs relating to others outside your business who are affected by the cyber attack. This may include damages payable to an injured third party, or compensation or legal costs for anyone whose personal data is leaked.

3. Your business’ loss of income or revenue as a result of damage to your reputation, i.e. losing potential customers.

4. Your business’ loss of income due to your operational outage. This coverage will apply if your business needs to suspend trading on a temporary basis or shut down permanently.

After a cyber attack

The business interruption aspect of cover under a cyber policy should extend to cover the overall financial impact of the cyber incident to your business. But it should also cover costs beyond the duration of the cyber attack.

The indemnity period is the length of time for which compensation is payable under a business interruption policy. This could mean the period during which the income of the business is affected by the cyber event subject to the number of months shown in the schedule. Or, it may mean the period of reinstatement of services affected by the cyber event. You will need to check your cyber insurance policy to make sure.

The typical maximum indemnity period in cyber insurance policies is 3 months. This reflects the short duration of most cyber attacks, and makes it important that you act as soon as possible after you realise an attack has occured.

If you have any doubts about whether your cyber insurance policy covers business interruption, then talk to exert cyber liability insurance experts and we can advise you on the best form of protection for your business.

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OUR CYBER INSURANCE SPECIALISTS

RACHEL DIXON

CAEVA O'CALLAGHAN

CAROLINE MCARDLE

All Information in this post is accurate as of the date of publishing.