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Data Breach Insurance for Financial Services: How does it work?

Data breach insurance for financial services

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What is data breach insurance?

Data breach insurance, sometimes called cyber liability insurance, covers businesses that handle sensitive data against the risk of being hacked. Most financial services businesses have computer systems that store private customer information. This might include personal identification, financial, or payment information, or social security numbers. Insurance ensures that you are covered in the event of a data breach, denial of service attacks, virus, or even if a laptop containing sensitive information is lost. These damages are commonly excluded under commercial general liability policies. This makes data breach insurance a good choice if your business stores sensitive customer data.

Financial professionals frequently store tax or bank account information. Your servers could be attacked by a virus that steals the bank information of several customers. These customers could file suit against your company for violation of privacy. Data breach insurance covers legal fees and fines associated with cyberattacks. This insurance will also cover fees for public relations costs to repair your company’s reputation, as well as the cost of technical assistance to investigate a hack.

Cyberattacks may also stop your business operations for a period of time, causing you to lose money. If you store sensitive customer information, having data breach insurance is a wise investment that will provide financial protection in the event of a cyberattack.

Who needs data breach insurance?

Financial services professionals who store personally identifying customer information may need data breach insurance if they collect any of the following information:

What does data breach insurance cover?

Data breach insurance covers financial losses from data breaches, hacking, viruses, denial of service attacks, and other similar cyber events. In financial services, coverage form these types of events is particularly important, as much of the data you work with is sensitive and confidential in nature.

There are two flavors of data breach insurance, first-party and third-party:

First-Party Coverage

As a financial services provider, protecting sensitive data is part and parcel of your business. In the unfortunate event of a data breach or hack, first-party coverage will protect your business from the financial losses incurred from:

Third-Party Coverage

In the event of a loss or breach of data that a customer has entrusted in your safekeeping, your business may be embroiled in client lawsuits. Third-party coverage protects against lawsuits filed by clients or others against your business as a result of a breach of their security or privacy. These lawsuits can accuse your business of failing to adequately protect data you possess that belongs to customers, employees, vendors, or others.

Some of the claims that third-party liability may cover include:

Third-party liability insurance is generally written on a claims-made basis, which means coverage is only available if the claim is submitted while the insurance policy is active. Most general liability policies are written on an occurrence basis, which covers claims submitted after the policy ends if the event causing the claim occurred while the insurance was active.

What doesn’t data breach insurance cover?

Data breach insurance is primarily designed to protect your business from cyberattacks. However, there are some exclusions to the coverage from this insurance. These include:

How much does data breach insurance cost?

The average cost of cyber insurance is $1,485 per year in the U.S. The costs of insuring your business against data breaches and hacking attacks varies based upon the nature and size of your business, as well as the state in which your business is located. Below, we list the average cost of cyber insurance in each state, along with the difference between the state average and the national average.

StateAverage Cost of Cyber InsuranceDifference from National Average
Alaska$1,532.89 3.23%
Alabama$1,539.40 3.67%
Arkansas$1,646.50 10.88%
Arizona$1,581.50 6.50%
California$1,430.18 -3.69%
Colorado$1,521.67 2.47%
Connecticut$1,593.62 7.32%
District of Columbia$1,539.25 3.66%
Delaware$1,446.47 -2.59%
Florida$1,529.82 3.02%
Georgia$1,450.54 -2.32%
Hawaii$1,519.46 2.32%
Iowa$1,505.73 1.40%
Idaho$1,483.70 -0.08%
Illinois$1,434.59 -3.39%
Indiana$1,484.06 -0.06%
Kansas$1,501.38 1.11%
Kentucky$1,587.10 6.88%
Louisiana$1,623.94 9.36%
Massachusetts$1,380.59 -7.03%
Maryland$1,471.18 -0.93%
Maine$1,467.39 -1.18%
Michigan$1,339.33 -9.81%
Minnesota$1,708.11 15.03%
Missouri$1,509.00 1.62%
Mississippi$1,472.55 -0.84%
Montana$1,478.29 -0.45%
North Carolina$1,421.49 -4.27%
North Dakota$1,464.42 -1.38%
Nebraska$1,485.64 0.05%
New Hampshire$1,431.99 -3.57%
New Jersey$1,615.25 8.77%
New Mexico$1,355.36 -8.73%
Nevada$1,507.55 1.52%
New York$1,616.70 8.87%
Ohio$1,553.68 4.63%
Oklahoma$1,513.03 1.89%
Oregon$1,462.50 -1.51%
Pennsylvania$1,466.49 -1.24%
Rhode Island$1,541.58 3.81%
South Carolina$1,398.83 -5.80%
South Dakota$1,489.45 0.30%
Tennessee$1,500.20 1.03%
Texas$1,459.22 -1.73%
Utah$1,515.10 2.03%
Virginia$1,467.83 -1.15%
Vermont$1,457.70 -1.83%
Washington$1,449.80 -2.37%
Wisconsin$1,523.03 2.56%
West Virginia$1,629.64 9.74%
Wyoming$1,426.89 -3.91%

Besides the location of your business, a number of other factors can greatly affect the premiums that you pay for cyber insurance. Insurance companies will take into account the nature of your business, the number of sensitive employee and customer records you store, whether your business stores credit card and banking information on your customers, and the types of security defenses your company has undertaken. Additionally, if your company has a history of cyber insurance claims or if it has been attacked or hacked in the past, your premiums may be higher.

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