Should You Get Cyber Liability Insurance?

One of the first cyber hacks to affect US businesses took place in 1988. Called the Morris Worm, it spread to computers via the internet, replicating itself, and slowing computers down to the point where they were unusable. It affected approximately 6,000 individual computers and no one was prosecuted.

Flash forward a few decades and a multitude of small businesses are affected each day by cyber-attacks**. According to a report published by Symantec in 2016, nearly half of cyber-attacks worldwide were against small businesses with less than 250 workers.** (citation)

So it’s no wonder that insurers are taking notice. We interviewed David Nordel of Farmers Insurance about the staggering increase in the number of cyber-attacks against small and midsized businesses, and what specifically Farmers Insurance is doing to help these business owners.

Consilien: David, what is Farmers doing to help small business owners mitigate the threat of cyber-attacks?

David: Farmers is offering a host of solutions for our clients that include, on-line support to help customers understand and handle data security issues, compliance and breach response information, and more. But we’re being even more proactive having increased our Cyber Liability and Data Breach coverage from $50,000 to up to $1 million.

Consilien: Why the big change in coverage?

David: Demand. Cyber-crime is on the rise. According to a report published by NetDiligence, a cyber risk assessment and data breach services company, the d****ata breach response costs for an uninsured organization can be up to 30 percent higher than for an insured organization. (citation)

Numbers like these could be the difference between a small or midsized organization staying in business or having to close its doors.

Consilien: What types of businesses are you seeing being hacked?

David: We’re seeing healthcare organizations with the highest frequency of breach at about 21 percent, followed by financial services at 17 percent. With the average number of records affected in the millions, and the average cost incurred for each stolen record at around $158 each, this is costing the business community billions.

Consilien: Aren’t other insurers offering cyber liability and data breach insurance?

David: Yes. There are about 75 different company’s offering a product, but in 40 different forms and it’s usually very specialized. What Farmers has done is simplified the process by offering comprehensive coverage.

Consilien: Are there any businesses that may not need standalone cyber liability coverage?

David: Typically, businesses with say less than $10 million in annual revenues, which don’t store or process large amounts of sensitive data, may not need standalone cyber policy. However, that doesn’t mean they won’t have their systems compromised, so they should still include cyber liability by endorsement on their General Liability or Business Owner’s Policy.

Consilien: What else could businesses do to protect themselves?

David: We recognize that insurance isn’t going to prevent cyber-attacks. What cyber liability and data breach insurance will do is protect businesses from financial losses if a hacker is able to get through their defenses.

We always recommend that a business have the appropriate backup, disaster recovery, and business continuity systems in place.

An added bonus to having these preventative measures in plac, is the business could earn credits that could be applied to their premiums. It’s the best of all worlds.

Consilien: So, to wrap up, what are the 4 things every business leader must know about cyber liability and data breach insurance.

David: 1. No company is too small to be hacked. 2. You are likely to be liable for a data breach even if you outsource your security. 3. Hackers don’t discriminate, public, private, non-profit businesses are all at risk. 4. Insurance is insufficient on its own to mitigate cyber risk and protect a business from the full impact of a breach including brand damage and loss in company value.

So be proactive, shore up your defenses, and get coverage now.


David Nordel is a Risk Analyst and Associate Agent at Farmers Insurance/Martelaro Insurance Agency, in Torrance.  With over 30 years combined experience, our local agency understands the intricacies of insurance. You can reach David at 310.214.9481 or email david.smartelo@farmersagency.com