The Need for Cyber Insurance for MSMEs

Posted on: Nov 28, 2022 | 3 mins | Written by: HDFC ERGO Team

The Need for Cyber Insurance for MSMEs

The Internet has been a boon to the present generation and has completely changed the way the world works today. With the pandemic, internet usage increased as everyone was locked in their houses and everything was done online. Due to innumerable reasons, the internet has been a blessing but at the same time, it has its own disadvantages. The issue is when the internet is used for unethical purposes and this is what makes cyber insurance important.

The instances of cyber-attacks have been increasing at an exponential rate and it is wrong to say that only big corporates and businesses are prone to them. Small and medium enterprises are also at risk and there have been many cases when they have been the targets as well.

The number of MSMEs is increasing and this is the right time for them to grow and take over the market. As these companies are growing, they are also becoming easy targets for cyber attackers. Cyber weapons today are available at lower costs and this has increased to malware, phishing attempts, payment frauds, attacks on unsecured Wi-Fi, ransomware, and many others.

The need of the hour is to have cybersecurity insurance for small and medium enterprises and let us look at this in detail. It is essential to understand why are MSMEs more prone to such attacks and also how it can impact them and thus, the need for cyber insurance.

How Susceptible Are MSMEs To Cyberattacks?

MSMEs i.e. Micro, Small, and Medium Enterprises are growing firms in the country and today contribute about 28-30% of the GDP of the economy. They give employment to a large number of people but they are not the same as large corporates and organisations. The systems and procedures of these organisations are not as strong as the big ones and thus, they become easy targets. The smaller companies do not have the funds to afford systems to avoid attacks and thus, cyber-attacks are easier for hackers and this is what makes them more prone. Also, lack of knowledge and how to protect themselves are other reasons for more frequent attacks. This is why cyber insurance in India is growing as gradually people are understanding its relevance and importance.

What Is The Impact Of Cyber Attacks On MSMEs?

It is difficult to understand how a cyber-attack can affect an MSME. This is one of the main reasons these companies do not take adequate preventive measures and of course, do not realise the importance of cyber insurance. Financial loss is one of the biggest causes of concern but it is not the only one. There are many intangible and direct costs that come with an attack like this. Let us see how a cyber-attack by hackers can affect an MSME.

What Is The Potential Financial Loss For Any Cyber Attack?

Let us start with the most important one which can lead to something as severe as bankruptcy. If there is any theft of intellectual property and data or any kind of financial fraud, it can lead to huge financial losses. Any attack on the hardware and software will also have financial implications and can lead to bankruptcy which has other issues.

Possibility Of Data Loss:

Every business has data and any information which they store about their clients and customers is confidential. Any kind of cyber-attack will cause a breach and result in the loss of this data. This in many ways is not good for the business. This affects the reputation of the business and the loss of customers.

What Are The Regulatory And Legal Actions Needed?

When there is a breach and data is lost, the responsibility is of the business at the end of the day. This shows their failure to set up secure systems to protect important information. This can lead to action from the regulatory authorities and can result in penalties and fines. There can be legal action as well which has its own repercussions.

List of Financial Loss Due To A Cyberattack:

One of the main impacts of a cyber breach is the financial loss the business has to incur. Any theft of intellectual property or data or money or even software will impact the business and cause financial losses. These are the worst to handle and can lead to bankruptcy also and eventually cause the closure of the business. This is why cyber insurance is important for all businesses.

Besides the above there are many other effects, some are direct and some indirect. Some of these are:

● Cost of technical investigation

● Customer protection after the breach

● Regulatory compliance

● Litigation and attorney fees

● Improvements in cyber security

● Increase incybersecurity insurance premium

● Increase in cost when raising the debt

● Loss of IP (intellectual property) rights

● Loss in customer base.

Key Coverages Provided By The Cyber Insurance Policy For MSMEs:

Cyber insurance protects MSMEs against first and third-party costs that a business face because of a cyber breach. Cyber insurance in India is a fast-growing insurance vertical and the following coverage is provided to a company under cyber security insurance. A cyber breach can lead to many costs and issues for a business and these are precisely what the policy covers. This mitigates the risk for a company and helps them recover and get back to business in case of a breach.

1. Fines cost that need to be paid to regulators

2. Cost of administrative expenses and legal expenses

3. Liability arising out of loss of data by covering defence costs and damages

4. Costs to rebuild reputation by hiring PR companies

5. Legal costs for customers who are affected by the breach

6. Cyber extortion costs to negotiate and pay the ransom if needed

7. IT forensic teams to help find the cause of the breach

8. Business interpretation costs which are the loss incurred due to interruption in business activities

9. Cost to recover data which will involve recollecting, restoring, and replacing the breached data

Conclusion

A cyber insurance policy is a must for all enterprises today. The coverage offered is extensive and only in the times of a breach will a company understand the importance. There are many other liability policies like Crime Insurance Policies and Directors’ and Officers’ Liability Policy that can help a company in such times. For anyone working in the business field is bound to use the internet and any kind of cyber presence is a good enough threat to a cyber-attack. Thus, each business should have systems in place to avoid this and of course, insurance to stay protected and covered if something were to happen. Cybersecurity insurance is mandatory for any firm today irrespective of size.

Disclaimer: The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.

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