Why Cyber Insurance For Startups is Important?

Posted on: Mar 22, 2024 | 3 mins | Written by: HDFC ERGO Team

Why Cyber Insurance For Startups is Important?

In this fast-pitching entrepreneurial world, there is no shortage of innovative startups. Most of these startups are launched digitally or at least have a database on their laptop or desktop. Founders often overlook the possibility of facing a cyber attack and are more focused on other important components of their company. Cyber thefts have been very common for the past decade and are eminent in reducing customers and revenue. If the theft is successfully done, the thief can access and leak sensitive information like bank details, media files, employee credentials, stock information, etc.

A newly launched startup is like having a baby who cannot suffer even a tiny cut. So, the optimal way to endure any malicious cyberattack is cyber insurance for startups.

Which kind of startup needs cyber insurance and why?

A start-up that has an online presence and deals with intellectual property is prone to a data breach and can have its data misused. For instance, a startup that has limited resources and experience is vulnerable to attacks that can cost them their clients and revenue. The invention of generative AI has heightened cyber attacks by empowering deep fakes and AI-powered voice technology. With a small team and the non-affordability of top technicians, it is challenging to detect malware or cyber breaches. This is where cyber insurance comes into play and secures the company's assets, reputation, and customers. The key features of cyber insurance are:

• Comprehensive coverage for data breaches, ransomware, business interruptions, and data recovery.

• Analysis of the attack by doing vulnerability scans and risk assessments.

• Handling legal support and provision for expert guidance on data privacy laws and regulations.

• Protection from financial penalties imposed by data protection authorities.

• Some often provide educational facilities to empower the team and to recognise and respond to potential threats.

The above-mentioned points are the key features of a standard cyber insurance for startups. A comprehensive plan can benefit entrepreneurs at unexpected times and absolve them of any sudden losses.

Advantages of cyber insurance for a startup

Entrepreneurs are well aware of the attacks that their companies can face. Their innovative nature and valuable data can be magnets for attackers seeking quick wins. Luckily, cyber insurance for entrepreneurs acts like a trusty shield, offering substantial advantages for these young ventures. On buying a cybersecurity insurance plan, a startup can access the following advantages:

1. Financial Recovery

Cyber insurance offers protection from a variety of post-attack expenditures, including legal bills, public relation expenses, data recovery and system restoration. This saves startups from going bankrupt and enables them to concentrate on healing and reconstruction. The coverage breaks down as:

• First-Party Cyber Insurance Coverage (FPCIC)- This focuses on forensic investigation, legal advice, notifying victims, credit monitoring, losses incurred due to ransomware, reputation damage, and data recovery.

• Third-Party Cyber Liability Insurance (TPCLI)- It looks after network security and privacy liability, fine coverage due to regulatory compliance violations, penalties imposed by Payment Card Industry Data Security Standard (PCI DSS), and other regulatory fines.

2. Expert Guidance and Assistance

In the event of a cyber attack, the insurer immediately connects the startup with cyber experts. These experts provide crisis management advice that prevents the company from facing any further attacks. A professional cyber expert can explain the nature of the attack and the possible consequences along with the steps to recover from it.

3. Risk Management

Pre-breach services, including vulnerability scans, risk assessments, and employee training programs, are provided by many insurers. Taking preventive steps can find and fix system vulnerabilities before they are misused. This lessens the likelihood that someone will attack the business in the first place.

4. Peace of Mind

A much-needed dose of security is added to the business by cyber insurance. It frees the founders to concentrate on growing the business and building financial support against cyber catastrophes.

5. Customer's Confidence

Having cybersecurity insurance gives the customer confidence that even if the startup faces a cyber attack, the valuable data will not get leaked. Even after a successful breach, the hackers won't be able to interpret the data. Cyber insurance for entrepreneurs offers a wide range of benefits covering all the mishaps that a startup can incur due to a data breach. Choose a cyber insurance plan today!

Points to consider while buying a cyber insurance plan

Startups that operate through e-commerce platforms, trading platforms, etc. must have a cyber insurance plan. While availing a cyber insurance plan, a startup should consider the following:

1. Recognise the data

Determine the sensitivity of the data, such as proprietary algorithms, customer details, or intellectual property. Prioritising the type of coverage the startup requires is easier when the founder is aware of the data assets.

2. Pre-breach armour

Risk assessments and vulnerability scans are two important pre-breach services provided by many cyber insurance policies. These assist in spotting and fixing vulnerabilities before cybercriminals take advantage of them. These services save money and reduce headaches.

3. Compare sub-limits

Check the sub-limits offered by the insurer because they can affect the financial recovery of the startup. Read the policy and compare the sub-limits offered by other insurance companies. The common areas with sub-limits include ransomware attacks, pre-breach services, crisis management, and data breach notifications.

4. First party & third party coverage

Ensure that the policy covers the expenses of data restoration, lost income, reputational damage, employee training and other pre-breach services. The plan should also protect against legal and financial liabilities arising from a cyberattack.

5. Beware of exclusions

Read the policy thoroughly and understand what is excluded. Cyber insurance for startups does not cover any physical damage, loss incurred in cryptocurrency, use of restricted websites, and online gambling. Other factors that you can check for are indemnity agreements, claim process, duration for coverage, etc. Choose a standard cyber insurance plan today!

Conclusion

For any ambitious startup, the digital landscape is both a launchpad and a minefield. Ransomware and other cyber threats are always present and ready to strike. Cyber insurance is like a magical barrier to defending all the laborious efforts. Though it may appear like another expense, hacking can bring down the most resilient startup. Having the support to help the business recover from the harm and resume operations is a blessing. It also demonstrates to clients and investors that the founder takes security seriously.

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

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