Cybercrime refers to criminal activities that occur on internet-connected devices such as computers and smartphones. Cybercrime attacks are becoming more sophisticated worldwide, and the amount of damage caused is also increasing. The recent COVID-19 pandemic may have accelerated digital transformation and thus accelerated cybercrime.
Cyber insurance, which compensates for loss from cyber attack, is a relatively new form of insurance. It started to be dealt with in the late 1990s, initially covering only third-party liability for consumer harm due to the release of personal information. With the rise of ransomware attacks demanding ransom for encrypted data in the 2010s, cyber insurance began to be introduced to compensate for the damage suffered by companies.
The reason small businesses may not be considering cyber insurance could be due to a lack of awareness or understanding of the importance and benefits of cyber insurance. Additionally, the cost of insurance and perceived lack of need may also deter small businesses from obtaining coverage. To address this issue, it is important for insurance providers to educate small businesses on the importance of cyber insurance and the potential risks and consequences of not having coverage. Providers can also offer more affordable and tailored packages to meet the specific needs of small businesses.
It is believed that cybercrime only occurs to government agencies and big companies as they have massive information, making them a great target for cyber criminals. However, big companies have security programs in place to protect their digital information from cybercrime. In contrast, small businesses have relatively smaller digital information, making them less likely to be a target. However, their security programs to protect their information from cybercrime are weaker compared to big companies, making small businesses an attractive target for cybercriminals. According to statistics, ransomware crimes in small businesses increased by 40% up until 2021, fund transfer fraud increased by 54%, and the average claim amount was $149,000. Therefore, the conclusion is that small businesses are not safe from cybercrime.
Email, text, and online banking that we commonly use are also considered technology. It's been a long time since the internet has become an indispensable tool for efficiently communicating with customers and efficiently running businesses, which cannot be avoided. One of the most common cybercrime methods is through phishing emails or texts. Fraudsters pretend to be trustworthy organizations such as customer support, banks, etc. through email or text, cunningly tricking the victim into giving away important information like date of birth, SS#, credit card information, address, password, or sending malicious emails or texts with a virus. This leads to financial fraud and crimes like ransomware. The problem is that phishing emails are becoming more sophisticated, making it increasingly difficult for victims to distinguish them.
Anyone can become a victim of cybercrime through daily used methods like email, text, online banking, etc.
Installing data security programs on computers or using a cloud vendor to store important information is only the first step in reducing cyber crimes, but these systems cannot necessarily ensure that the business is safe from cyber crimes. Such security measures may fail. There is no security program that provides 100% complete protection. The best protection should be obtained through the installation of security programs and cyber insurance. A business may install an alarm system to prevent theft and install a sprinkler to reduce fire damage, but it would be the same principle as obtaining business insurance for compensation in case of accidents that may still occur.
Cyber insurance is not automatically included in general business insurance. There are two ways to enroll in cyber insurance: by adding it to your business insurance (Endorsement) or by enrolling in a separate cyber insurance policy (Stand Alone). If you choose to add cyber
insurance to your business insurance, the premium will be much cheaper but many necessary coverages will be missing in case of an accident. Examples of such accidents include business interruption compensation in case of an accident, ransomware compensation, and fund transfer
fraud, which can only be compensated in many cases if a separate insurance policy is enrolled.
Therefore, it is recommended to enroll in a separate insurance policy.
If a cybercrime occurs, the damage can be catastrophic. In case of an accident, the business incurs legal related fees to resolve the issue, costs to restore personal credit of customers affected, cost for data recovery, costs for restoring computer systems, costs for informing customers about the possibility of data leak, fines and penalties, loss of net profit from the business due to the cyber incident, and even compensation for the ransom demanded by cybercrime organizations, leading to enormous losses. Cyber insurance covers all costs up to the limit of the coverage provided as compensation for joining. Also, when a cyber incident occurs, it can decrease the credibility of the company, and the cost required to recover from this by hiring a marketing company is also compensated. Compared to the amount of damage caused by cyber crimes, the cost of cyber insurance is a small expense necessary for business operations. The cost of cyber insurance varies depending on factors such as total annual sales and business sector. Of course, this expense is treated as a business expense when calculating taxes, just like other business insurance. The frequency and severity of cyber crimes are increasing. When considering the size of damage caused by incidents, it is no longer something that can be postponed to have cyber insurance. The occurrence of cyber crimes in small businesses is not a question of "if," but "when."