Understanding the Difference: Data Breach vs. Cyber Liability Insurance 

Introduction 

Businesses of all sizes can be vulnerable to data breaches and cyberattacks, even with technological and physical protective measures in place. While not all data breaches are intentional, hackers use cyberattacks to steal, alter, expose, or destroy data. Both data breaches and cyberattacks can result in:

• Loss of intellectual property
• Lost revenue from disrupted operations
• Data and equipment recovery expenses
• Costly lawsuits
• Damage to your reputation

While ensuring that your staff is well-trained and you have appropriate security measures in place can help protect your business from cyber incidents, maintaining data breach or cyber liability insurance can provide an added layer of protection if you get hacked or a data leak occurs.

This article explains the differences between data breach and cyber liability insurance so that you can choose the best coverage for your business.

What Is Data Breach Insurance?

A data breach is when an individual or organization gains access to confidential information without authorization. A data breach can be either intentional or unintentional, and can occur due to:

• Hackers accessing data from your devices or networks
• Theft of documents or devices that confidential information is stored on, such as computers, mobile devices, or flash drives
• An employee falling for a phishing scam (when someone sends an email pretending to be a trusted organization) or someone opening an email meant for a different recipient

State data breach notification laws require organizations that have experienced a data breach to notify affected individuals if their personal information is exposed. 

Data breach insurance helps cover costs that your business may incur after a data breach, including:

• Customer notification costs
• Credit monitoring services for individuals whose identity may be in jeopardy
• Equipment replacement

What Is Cyber Liability Insurance?

Cyber liability insurance helps cover financial losses and legal fees resulting from data breaches or cyberattacks. Your business may face lawsuits if the personal data you collect is lost, jeopardized, or exposed due to negligent behavior or weak security measures. Cyber liability insurance can help cover legal and settlement costs, and any regulatory fines if your business is accused of causing damages to a third party due to a cyber incident.

Cyber liability insurance can also help pay for costs associated with the theft of personal data, recovery of a hacked computer system, and cyber extortion (when a hacker demands that you pay ransom to regain access to stolen data). 

Costs associated with a cyberattack or data breach that cyber liability insurance can help cover include:

• Investigating the cause of the data breach
• Data recovery (including paying ransom to recover data)
• Legal fees
• Settlement costs
• Contacting customers whose data was affected
• Identity recovery (paying to retrieve and restore identity information)

Data Breach vs. Cyber Liability Insurance: Differences and Similarities

The main difference in data breach vs. cyber liability insurance is that cyber liability insurance can help pay for costs associated with a data breach or cyberattack and provide legal protection, while data breach insurance only helps pay for costs associated with a data breach. 

Data breach insurance provides first-party coverage, which helps cover your business’s recovery costs. Cyber liability insurance offers first- and third-party coverage, which means it helps pay your business’s recovery costs–such as lost revenue and credit monitoring expenses–and legal costs.

Benefits of Data Breach and Cyber Liability Insurance

Data breach coverage offers first-party coverage to help protect you from financial losses due to data breaches. Whether you or an employee accidentally exposes confidential data, or a hacker intentionally accesses, steals, or releases data, data breach insurance can help pay for:

• Notifying affected individuals that their data was involved in a data breach
• Providing credit monitoring services for affected individuals 
• Providing assistance hotlines or other data recovery or data protection services for affected individuals
• Equipment replacement
• Extortion costs
• Public relations costs

On the other hand, cyber liability insurance provides both first- and third-party coverage. It helps provide legal protection if your business has to go to court for failing to protect personal data.

Cyber liability insurance can help pay for any of the following:

• Recovery of destroyed data
• Ransom payments
• Costs associated with identity theft
• Investigation costs
• Equipment repair costs
• The cost of notifying customers that their data was compromised
• Credit monitoring
• Lost revenue
• Settlement costs
• Regulatory fines
• Legal fees

Choosing Between Data Breach vs. Cyber Liability Insurance

So which one is best, data breach or cyber liability insurance? It depends on your unique business needs and risk levels. 

Smaller businesses and sole proprietors (such as independent contractors and web developers) with limited budgets that don’t store personal information may find that data breach insurance is best. However, larger organizations or companies that collect, process, store, or transmit large amounts of personal information should definitely consider the additional legal protection that cyber liability insurance provides. 

For some businesses, it might make sense to get both types of coverage. Cyber liability insurance doesn’t cover the theft of data stored in a non-cyber format, such as documents stored in a filing cabinet or storage room, but data breach insurance can help protect you if someone breaks in and accesses that data. 

Regardless of which type of insurance you choose, there are a few security practices you should maintain to make sure you are protecting your business from data breaches and cyberattacks:

• Conduct regular data backups
• Train staff on how to handle personal data
• Provide physical security for your servers and physical documents (security cameras, locks, guards)
• Ensure that you have technological security measures in place (firewalls, antivirus software, regular password change reminders, multi-factor authentication mechanisms)

Questions To Help Choose the Right Coverage

To decide whether data breach or cyber liability insurance is best for you, you should answer the following questions:

• How much data does your business handle?
• What types of personal data do you collect, process, or store?
• Do you store personal data on your own network?
• What is your budget for dealing with cybersecurity issues? Do you have enough money to pay for data recovery, customer notifications, and potential lawsuits after a data breach or cyberattack?
• What physical and technological security measures do you have in place?
• Are your employees trained to keep the data they handle safe?
• What is your plan for handling a potential data breach or cyberattack?

Conclusion

Whether you choose data breach vs. cyber liability insurance, you should ensure that your policy covers your business’s unique needs. Recovery from data breaches and cyberattacks can be costly and can erode customers’ trust in your organization, but the right protection can help save money and your reputation.

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