Everything You Need To Know and Do to Pre-Qualify For Cyber Insurance in 2024

Cyber insurance is becoming a must-have for businesses of all sizes. As cyber threats grow more sophisticated, having financial protection in place is just common sense in 2024. This guide will walk you through everything you need to know about pre-qualifying for cyber insurance so you can negotiate effectively and potentially qualify for the best rates.

From understanding the types of coverage available to enhancing your eligibility and navigating the application process, this article covers each step comprehensively. We’ll also share some insider tips on how to accurately complete your application and negotiate terms.

Understanding Cyber Insurance Coverage

Cyber insurance coverage, simply stated, allows businesses to mitigate the financial risks associated with cyber threats. This section covers the different types of cyber insurance, specifically the differences between first-party and third-party coverage, and the key areas these policies typically protect. Once you understand these distinctions and coverage specifics, you can make an informed decision about the type of insurance you need to ensure your business is covered in the event of a cyber incident.

First-Party vs. Third-Party Coverage

First-Party Coverage is designed to protect the insured business itself from the direct impacts of a cyber incident. This coverage typically includes:

Data Recovery: Covers the costs associated with recovering lost or stolen data, which is crucial since, according to IBM’s Cost of a Data Breach Report 2023, the average cost of a data breach is $4.45 million globally, and the cost has risen by 15% year-over-year for a decade!
Business Interruption: Compensates for lost income during system downtimes. For a small business, not being able to operate costs $137-$147 per minute, but for larger businesses this costs $16,000 per minute. Without business interruption insurance, you can see how a company might quickly go under after even just a short cyber incident.
Cyber Extortion: Provides protection against ransom demands from cybercriminals. With ransomware attacks increasing in frequency, this coverage is increasingly important.
Legal and Regulatory Expenses: Covers legal fees and fines associated with data breaches. Given SEC penalties average several million dollars for compliance violations, it’s worth considering this coverage in your first-party cyber insurance..

Third-Party Coverage shields the insured from liability claims made by external parties affected by a cyber incident involving the insured’s systems. This coverage includes:

Legal Defense Costs: Covers the expenses of defending against lawsuits alleging security failures or data breaches.
Settlements and Judgments: Pays for any legal settlements or judgments awarded against the insured.
Regulatory Fines: Helps cover fines and penalties imposed by regulatory bodies due to compliance failures.

Every business is different, both in its size and area of operation, so we can’t give you a simple recommendation on what blend of first-party and third-party coverage you should get. This is a decision you’ll need to make based on your specific operations and potential exposure.

Key Coverage Areas

Cyber insurance policies cover a range of protections designed to address the complex nature of cyber risk. The key coverage areas include, but are not limited to:

Data Breach Response: Covers expenses related to managing a data breach, including customer notifications, credit monitoring services, and public relations efforts to manage the company’s reputation post-breach.
Income Loss: Provides compensation for business income lost due to a cyber incident. This coverage is particularly important given the potential for extended downtimes following a cyberattack.
Legal Fees: Legal counsel is often necessary to navigate the aftermath of a cyber incident, from defending against third-party lawsuits to addressing regulatory inquiries. Cyber insurance can cover these legal fees, alleviating the financial burden on the business.
Crisis Management: Some policies offer support for crisis management and public relations to help restore customer confidence after an incident.

In addition to these core areas, businesses should also consider coverage for:

Forensic Investigation: Following a breach, forensic experts are needed to determine how the breach occurred and how to prevent future incidents.
Cyber Extortion: With the rise of ransomware, coverage for extortion payments can be a critical component of a cyber insurance policy.

When selecting a cyber insurance policy, it’s essential for businesses to work with their insurer to tailor coverage to their specific needs, ensuring comprehensive protection against the evolving landscape of cyber threats.

Qualifying for Cyber Insurance

If you’ve gotten this far in the article, you’ve likely realized that having cyber insurance is critical for protecting your business against the financial implications of cyber incidents. But insurers don’t provide coverage indiscriminately. They assess each applicant’s risk level and security posture to determine eligibility and premiums. Consider this section a “pre-qualification” for cyber insurance. It covers all the things that insurers look for when evaluating applications for cyber insurance, including your risk assessment, essential security controls, and your incident response plan. Understanding these requirements will help you strengthen your cybersecurity measures and improve your chances of qualifying for coverage and your chances of qualifying for the best rates if you do qualify.

Risk Assessment and Security Posture

Insurers evaluate your company’s risk level and security posture to understand how likely you are to suffer a cyber incident and how prepared you are to manage one. This evaluation often includes:

Review of Past Incidents: Your history of cyber incidents can significantly impact your insurance application. A history of frequent breaches may indicate vulnerabilities that could increase your premiums or even make it difficult to obtain coverage.

Current Security Measures: Insurers will look at the cybersecurity measures you currently have in place. This includes firewalls, antivirus software, and employee access controls.

Cybersecurity Practices: Beyond tools and software, insurers are interested in your overall cybersecurity practices. This includes how often you update your software, the regularity of your cybersecurity training for employees, and how you manage access to sensitive information.

To improve your risk assessment and security posture, you should:

Conduct regular audits of your cybersecurity measures.
Update your cybersecurity practices regularly.
Maintain a clear record of any incidents and how they were resolved.

Essential Security Controls

Insurers require that you have certain core security controls in place to qualify for cyber insurance. These controls are foundational to a robust cybersecurity strategy and include:

Multi-Factor Authentication (MFA): MFA adds an additional layer of security by requiring users to verify their identity in more than one way before gaining access to systems or data. This significantly reduces the risk of unauthorized access. According to Microsoft Research, Implementing MFA alone can prevent 99.9% of attacks on your accounts. For this reason alone, it should be your first step in the process of pre-qualifying for cyber insurance.

Endpoint Detection and Response (EDR) / Managed Detection and Response (MDR): EDR tools detect and respond to threats on devices, while MDR services provide ongoing monitoring and response to threats by cybersecurity professionals. Even if your business is too small to be able to afford a full-time cybersecurity team on staff, you can hire cybersecurity experts to implement and manage this program for you, giving you similar levels of protection at a fraction of the cost. Contact Arch Access to learn more.

Security Awareness Training: Your staff are your first line of defense against cyber threats, especially those that start with a phishing attack. For this and many other reasons, documentation that your staff have been trained on how to spot and avoid cyber threats is a major consideration for cyber insurance providers when determining whether to offer you a policy, and how much it should cost.

Separate Backups: Ransomware attackers know that you’re not likely to pay if you have a viable backup that you can restore from. This is why 95% of ransomware attacks also go after backups. If you have another copy of the data they’ve taken from you, their leverage is basically gone. For this reason, having a backup strategy that includes multiple, separate backups, especially backups that are ‘offline’ and can’t be accessed over a network, is a strong cybersecurity defense and an indication that you’ve got cyber risk under control.

Vulnerability Management: This involves regularly identifying, assessing, and mitigating vulnerabilities within your systems to prevent exploitation by cybercriminals.

To ensure you meet the essential security controls required by insurers, you should:

Implement MFA across all systems where sensitive data is accessed.
Invest in EDR or MDR services to enhance your threat detection and response capabilities.
Establish a routine for vulnerability scanning and remediation.

As with EDR/MDR, it may be faster and more cost-effective to hire a third party to manage this process for you.

Incident Response Plan

Having a documented and actionable incident response plan is crucial for qualifying for cyber insurance. This plan outlines how your business will respond to cyber incidents, minimizing damage and recovery time. An effective plan should include:

Roles and Responsibilities: Clearly define who is responsible for what actions during and after a cyber incident.

Communication Strategies: Outline how you will communicate internally and externally in the event of a breach. For help here you should check out our article on Handling Customer Communication in the Wake of a Cybersecurity Breach.

Recovery Steps: Detail the steps to recover any lost data and secure your systems following an incident. Because cyber incidents can be investigated and prosecuted as a crime, you should strongly consider engaging a professional cybersecurity firm in this process, to ensure that you don’t accidentally destroy evidence.

To develop a comprehensive incident response plan, you should:

Collaborate with IT and cybersecurity experts to ensure all potential scenarios are covered. Don’t have in-house IT and cybersecurity teams and need help with this process? Start with our article on the 7 steps of incident response first, and if you need more help reach out to Arch Access and we can work with you to build a solid incident response plan.
Conduct regular drills to test and refine your plan. These drills are commonly known as ‘tabletop’ exercises because they don’t actually involve you taking systems offline or introducing ransomware to test your response. They’re performed in a “What if?” model, to ensure that your team knows what steps they need to take in a given scenarion. If you need a place to start, the U.S. Covernment’s Cybersecurity & Infrastructure Security Agency (CISA) has some tabletop exercises that you can adapt (they’re written for large organizations and government offices).
Review and update your plan regularly to adapt to new threats. Like everything else in your business, cybersecurity moves quickly. Make sure to add a ‘Review cybersecurity plan and update if necessary’ bullet point to your quarterly and annual business strategic planning.

By understanding and addressing these key areas, you’ll not only strengthen your cybersecurity posture but also improve your chances of securing cyber insurance coverage that suits your business’s needs, and your chances of qualifying for the best rates.

Improving Your Pre-qualification Standing

When it comes to pre-qualifying for cyber insurance, meeting just the minimum qualifications is likely to end up with you getting just the minimum coverage, and missing out on the best rates. Demonstrating your commitment to cybersecurity can make your business more appealing to insurers and potentially reduce your premiums. This section looks at how regular security audits, penetration testing, and compliance with regulations can help you pre-qualify for the best cyber insurance.

Regular Security Audits and Penetration Testing

Regular Security Audits are like health check-ups for your business’s cybersecurity posture. They involve systematically reviewing your cyber defenses to ensure they’re up to par. Think of it as a thorough inspection to find any weak spots in your system that hackers could exploit. During an audit, you’ll check your security policies, access controls, employee practices, and more.

Penetration Testing, on the other hand, is like a practice drill where cybersecurity professionals, known as ethical hackers, attempt to breach your defenses using the same tactics as real hackers. The goal is to see how well your system holds up under attack and identify vulnerabilities.

Both practices provide benefits:

Identify Vulnerabilities: Discover loopholes in your cybersecurity defenses before a real hacker does.
Demonstrate Commitment: Show insurers you’re serious about cybersecurity, which can make you a lower-risk client.
Continuous Improvement: Use the findings to strengthen your defenses, making your business safer and more insurable.

To get started with these, you should:

Hire A Reputable Cybersecurity Firm: Look for firms with a strong track record and industry certifications, and follow their guidance. Where should you look for a firm? Of course you can always reach out to Arch Access for assistance, but you can also check with your local Chamber of Commerce, or ask your attorney, banker, or investors (if you have them) for recommendations. And look for firms with experience working with businesses in your industry, and of your size.
Schedule Regular Audits: Plan for at least annual audits, or more frequently depending on your business size and sector.
Act Quickly On Findings: Implement the recommended changes and improvements to address anything uncovered during an audit. Some insurance plans require you to have a documented history of addressing vulnerabilities in order to offer you the best rates, so by starting now you’ll build up a track record that you can use in negotiations.

Compliance with Regulations and Standards

Avoiding fines is part of compliance, but the real benefit to your business from complying with local, state, and federal regulations is that it shows insurers your business takes cybersecurity seriously. Depending on your industry and the type of data you handle, various laws and standards may apply to you. For example, SEC laws govern publicly-traded businesses. Healthcare businesses have HIPAA compliance, of course, and some other industries have similar laws.

The bigger challenge, and another argument for working with an expert, is that 13 states have their own laws governing privacy and security of their residents’ personal information (with 17 more on the way!), and if your business collects or stores information belonging to residents of those states, you have to comply with them even if your business isn’t located in one of those states. For a detailed look at the laws and requirements in each state, this chart can help.

Being aware of and in compliance with these laws shows insurers that you:

Understand Legal Requirements: You’re aware of and adhere to relevant cybersecurity regulations.
Prioritize Data Protection: Following standards and regulations demonstrates a commitment to protecting sensitive information.
Reduce Risk: Compliance reduces the likelihood of data breaches and cyber incidents, making you a lower risk to insure.

To enhance your compliance and appeal to insurers, consider the following steps:

Stay Informed: Keep up to date with any changes in cybersecurity laws and standards relevant to your industry.
Implement Best Practices: Adopt industry-standard cybersecurity frameworks, like NIST’s Cybersecurity Framework, to guide your efforts. NOTE: this process can be challenging and time-consuming. Working with an expert can help you understand what applies to your business and what doesn’t.
Document Compliance: Maintain clear records of your compliance efforts, including policies, training, and audit results. This documentation can be invaluable during the insurance application process.

For more information on the things you should be looking at before obtaining or renewing cyber insurance coverage, check out our comprehensive article on the topic.

Best Practices for the Application Process

When it’s time to apply for cyber insurance, the work you put in on your pre-qualification process will determine how easy or hard the process is. The application process is detailed, and you’ll need to show the work you’ve already put in if you’re going to negotiate terms that best protect your business. Understanding this process and using best practices can make a huge difference in the coverage you receive and the premiums you pay. Let’s explore how to navigate this crucial stage effectively.

Completing the Cyber Insurance Questionnaire

The cyber insurance questionnaire is a big part of the application process. It’s designed to assess your business’s risk level and security posture. For simpler policies, filling out this questionnaire might be all that’s required, but more comprehensive policies might require an audit of your cybersecurity measures.

Consider These Things While Completing the Questionnaire:

Be Thorough and Honest: Provide detailed and accurate responses about your cybersecurity practices. Misleading answers can lead to denied claims if a breach occurs and the insurer finds discrepancies.
Highlight Your Security Measures: All those steps you took in the section on qualifying for cyber insurance? This is where they pay off. Bring details of all your cybersecurity efforts, from employee training programs to technical defenses like firewalls and encryption. This is your chance to show how you minimize risk.
Consult with Cybersecurity Experts: If you’re unsure about any questions, consult with your IT department if you have one, or an external cybersecurity expert like Arch Access. Their insights can ensure your responses accurately reflect your security posture and that you don’t miss anything that could cause you to be rejected, or that might have helped you land a better rate.

Negotiating Terms and Premiums

Negotiating with insurers might seem daunting, but understanding your security investments and risk profile can give you leverage.

Key Negotiation Tips:

Understand Your Coverage Needs: Before negotiations, clearly define what you need from your cyber insurance policy. Use the features we described earlier in this article to help decide what you need and what you can live without. The amount of coverage is another big factor in cost. Our recommendation here is to tailor it to your business’ revenue. Assume that your business will be impacted for several months and ensure that your insurance covers enough to help you get back on your feet after an incident.
Leverage Your Security Investments: Use your cybersecurity measures as bargaining chips. Insurers may offer better terms or lower premiums if you have evidence that you follow the practices described in this guide.
Ask for Clarifications and Adjustments: If certain policy terms don’t meet your needs or seem overly restrictive, ask for clarifications or request adjustments. It’s essential the coverage aligns with your risk profile.
Explore Discounts for Compliance: Some insurers offer discounts for businesses compliant with specific standards or regulations. If you have third-party documentation of compliance with standards like ISO 27001, this is important to mention during negotiations.

A Note on Audits: For more comprehensive policies, insurers may require an audit of your cybersecurity practices. For these types of policies, pre-qualifying by implementing and documenting your cybersecurity practices is the only way to end up with a successful audit. This isn’t a test you can cram for at the last minute and expect to pass.

The Importance of Accuracy and Honesty: While insurers may not verify every detail before issuing a policy, they absolutely will go back through the information you provided if you have to file a claim with them. If they find any inaccuracies or falsehoods there’s a very good chance they’ll deny your claim. It’s better to be truthful up-front than risk paying the policy premiums and not being able to use the insurance when you need it.

Conclusion

Understanding what cyber insurance you need and what you don’t can be complex, but it’s a crucial step in safeguarding your business against the risk that an attack puts you out of business permanently. Understanding what insurers are looking for and taking steps to enhance your cybersecurity measures can help you potentially pre-qualify for the best coverage at favorable terms.

Implementing the controls you need to have in place can take several months, so if you’re ready to take the next step, Arch Access offers a free 3-minute self-assessment to help you pre-qualify for cyber insurance. This tool simplifies the complex process of applying for cyber insurance, making it easy for you to get started. Visit Arch Access’ pre-qualification page today to see where your business stands and learn more about your options. Protecting your business from cyber threats is essential, and with Arch Access, you’re not alone in this journey.