DEFINITION OF ‘CYBER AND PRIVACY INSURANCE’
An insurance policy that provides coverage from losses resulting from a data breach or loss of electronically-stored confidential information. Cyber and privacy insurance coverage is designed to protect a company from the activities of hackers and other individuals or groups who may gain access to private data.
INVESTOPEDIA EXPLAINS ‘CYBER AND PRIVACY INSURANCE’
The use of computers and the Internet has become an integral component of business operations over recent decades. Many businesses rely on the Internet to deliver services to clients, and many of these services require the passage of confidential and private information from the client to the company and vice versa. This information may include credit card details, Social Security numbers, health records, and contact information.
A data breach can have far reaching implications for a company. It can disrupt day-to-day operations as the company tries to understand how the data breach occurred, repair the damage done to systems, and make the necessary system updates to prevent a similar breach from happening in the future. The breach can negatively impact the business’ standing, as customers who have had their private data breached may switch to a competitor and potential customers may walk away because they fear that their data will be stolen as well.
Data breaches also carry a significant threat of legal action. The company may be required to notify clients that there was a data breach, and may have to provide free credit monitoring services for a period of time to individuals who had their data stolen. The company may be held responsible for fraudulent purchases on stolen credit cards, or for fund transfers made from bank accounts that were accessed via a cyber-breach. Regulators may levy fines against the company, and individuals may sue the company for financial issues related to the breach of secured data.
The amount of liability coverage in a cyber and privacy insurance depends on the needs of the company. Companies are more at risk if they store purchase information, or if they maintain records of Social Security numbers or other information prone to identity theft.