For small businesses navigating an increasingly digital world, cyber threats aren’t just an abstract worry—they’re a daily reality. Whether it’s phishing scams, ransomware attacks, or accidental data leaks, the financial and reputational damage can be severe. That’s why more companies are turning to cyber insurance to help mitigate these risks.

At Lightwire Solutions, we understand how important it is to have the right coverage in place. Not all cyber insurance policies are created equal. Many business owners believe they’re covered, only to find out (too late) that their policy has major gaps. In this blog post, our team will break down exactly what’s usually covered, what’s not, and how to choose the right cyber insurance policy for your business.

Why Is Cyber Insurance More Crucial Than Ever?

You don’t need to be a large corporation to become a target for hackers. In fact, small businesses are increasingly vulnerable. According to the 2023 IBM Cost of a Data Breach Report, 43% of all cyberattacks now target small to mid-sized businesses. The financial fallout from a breach can be staggering, with the average cost for smaller businesses reaching $2.98 million. That can be a substantial blow for any growing company.

Moreover, today’s customers expect businesses to protect their personal data, while regulators are cracking down on data privacy violations. A good cyber insurance policy not only helps cover the cost of a breach but also ensures compliance with regulations like GDPR, CCPA, or HIPAA. Our team sees this as a critical safety net every business should consider.

What Cyber Insurance Typically Covers

A comprehensive cyber insurance policy is crucial in protecting your business from the financial fallout of a cyber incident. It offers two main types of coverage: first-party coverage and third-party liability coverage. Both provide different forms of protection based on your business’s unique needs and the type of incident you’re facing. Below, we break down each type and the specific coverages they typically include.

First-Party Coverage

First-party coverage is designed to protect your business directly when you experience a cyberattack or breach. This type of coverage helps your business recover financially from the immediate costs associated with the attack.

Breach Response Costs One of the first areas that first-party coverage addresses is the cost of managing a breach. After a cyberattack, you’ll likely need to: 

• Investigate how the breach happened and what was affected
• Get legal advice to stay compliant with laws and reporting rules
• Inform any customers whose data was exposed
• Offer credit monitoring if personal details were stolen

Our team often helps clients coordinate these responses to minimize damage and ensure compliance.

Business Interruption

Cyberattacks that cause network downtime or disrupt business operations can result in significant revenue loss. Business interruption coverage helps mitigate the financial impact by compensating for lost income during downtime. It allows you to focus on recovery without worrying about day-to-day cash flow.

Cyber Extortion and Ransomware

Ransomware attacks are on the rise and can paralyze your business by locking up essential data. Cyber extortion coverage is designed to help businesses navigate these situations by covering:

• The cost of paying a ransom to cyber attackers
• Hiring professionals to negotiate with hackers to lower the ransom and recover data
• The costs to restore access to files that were encrypted in the attack

Our team stays current on ransomware trends and supports clients through these difficult scenarios.

Data Restoration

A major cyber incident can result in the loss or damage of critical business data. Data restoration coverage ensures that your business can recover data, whether through backup systems or a data recovery service. This helps minimize disruption and keeps your business running smoothly.

Reputation Management

In the aftermath of a cyberattack, it’s crucial to rebuild the trust of customers, partners, and investors. Many policies now include reputation management as part of their coverage. This often includes:

• Hiring Public Relations (PR) firms to manage crisis communication, create statements, and mitigate potential damage to your business’s reputation
• Guidance on how to communicate with affected customers and stakeholders to maintain transparency

Our team can also recommend trusted PR professionals and guide you through this delicate process.

Third-Party Liability Coverage

Third-party liability coverage helps protect your business from claims made by external parties (such as customers, vendors, or partners) who are affected by your cyber incident. When a breach or attack impacts those outside your company, this coverage steps in to defend you financially and legally.

Privacy Liability

This coverage protects your business if sensitive customer data is lost, stolen, or exposed in a breach. It typically includes:

• Coverage for legal costs if you’re sued for mishandling personal data
• It may also cover costs if a third party suffers losses due to your data breach

Regulatory Defense

Cyber incidents often come under scrutiny from regulatory bodies, such as the Federal Trade Commission (FTC) or industry-specific regulators. If your business is investigated or fined for violating data protection laws, regulatory defense coverage can help with:

• Paying fines or penalties imposed by a regulator for non-compliance
• Mitigating the costs of defending your business against regulatory actions, which can be considerable

Media Liability

If your business is involved in a cyberattack that results in online defamation, copyright infringement, or exposure of sensitive content (such as trade secrets), media liability coverage helps protect you. It covers: 

• Defamation claims – legal costs of defending against reputational damage
• Infringement cases – financial resources to address intellectual property violations

Defense and Settlement Costs

If your company is sued following a data breach or cyberattack, third-party liability coverage can help cover legal defense costs, including:

• Attorney fees in a data breach lawsuit 
• Settlement or judgment costs if your company is found liable Our team can help you understand these protections and assist in claims management if needed.

Optional Riders and Custom Coverage

Cyber insurance policies often allow businesses to add extra coverage based on their specific needs or threats. These optional riders can offer more tailored protection for unique risks your business might face.

Social Engineering Fraud

One of the most common types of cyber fraud today is social engineering fraud, involving phishing attacks or deceptive tactics designed to trick employees into revealing sensitive information, transferring funds, or giving system access. Social engineering fraud coverage helps protect against:

• Financial losses if an employee is tricked by a phishing scam
• Financial losses through fraudulent transfers by attackers

Hardware “Bricking”

Some cyberattacks cause physical damage to business devices, rendering them useless—a scenario known as “bricking.” This rider covers costs associated with replacing or repairing devices permanently damaged by a cyberattack.

Technology Errors and Omissions (E&O)

This coverage is especially important for technology service providers, like IT firms or software developers. Technology E&O protects businesses against claims from errors or failures in the technology they provide.

What Cyber Insurance Often Doesn’t Cover

Understanding what’s excluded from a cyber insurance policy is just as important as knowing what’s included. Here are common gaps our team sees small business owners overlook, leaving them exposed to certain risks.

Negligence and Poor Cyber Hygiene

Many insurance policies have strict clauses about your business’s cybersecurity practices. If your company fails to implement basic measures like firewalls, Multi-Factor Authentication (MFA), or regular software updates, your claim could be denied.

Pro Tip: Insurers increasingly require proof of good cyber hygiene before issuing a policy. We recommend showing evidence of employee training, vulnerability testing, and other proactive security efforts.

Known or Ongoing Incidents

Cyber insurance doesn’t cover incidents that were already in progress before your policy started. For example, if a breach or attack began before coverage kicked in, the insurer won’t pay for related damages. Similarly, if you knew about a vulnerability but didn’t fix it, your claim could be denied. Pro Tip: Our team advises ensuring your systems are secure before purchasing insurance and promptly addressing any known vulnerabilities.

Acts of War or State-Sponsored Attacks

Following high-profile attacks like NotPetya, many insurers now include a “war exclusion” clause. If a cyberattack is attributed to a nation-state or government-backed actors, your policy might not cover the damage. These are often considered acts of war, outside commercial insurance scope.

Pro Tip: Stay informed about these clauses and carefully review your policy’s terms with our team.

Insider Threats

Cyber insurance typically doesn’t cover malicious actions taken by your own employees or contractors unless your policy specifically includes “insider threat” protection. This can be a significant blind spot, as internal actors sometimes cause severe damage.

Pro Tip: If insider threats concern you, we recommend discussing tailored coverage options to ensure protection against intentional insider damage.

Reputational Harm or Future Lost Business

While many cyber insurance policies include PR crisis management, they usually don’t cover long-term reputational damage or future lost business after a cyberattack. The fallout—like lost customers or sales declines due to trust issues—often falls outside coverage.

Pro Tip: If reputation is a top priority, consider additional coverage or crisis management services. Our team can help evaluate these options.

How to Choose the Right Cyber Insurance Policy

Assess Your Business Risk

Start by evaluating your exposure:

• What types of data do you store? Customer, financial, and health data all require different protection levels.
• How reliant are you on digital tools or cloud platforms? Heavy dependence means more extensive coverage might be needed.
• Do third-party vendors have access to your systems? Vendors can be weak points; ensure they’re covered under your policy as well.

Our team can help you identify your greatest risks and tailor coverage accordingly.

Ask the Right Questions

Before signing a policy, ask:

• Does this cover ransomware and social engineering fraud? These are growing threats that many businesses face.
• Are legal fees and regulatory penalties included? Lawsuits and fines can be costly.
• What’s excluded and when? Understand the fine print to avoid surprises.

Don’t go it alone. We recommend working with a cybersecurity expert or broker familiar with both technical and legal cyber risks. Our team can guide you through these complexities to make sure you’re adequately protected.

Consider the Coverage Limits and Deductibles

Cyber insurance policies come with specific limits and deductibles. Make sure coverage limits match your potential risks—if a breach could cost millions, your policy should reflect that. Also, choose deductible amounts your business can afford to pay out of pocket.

Review Policy Renewal Terms and Adjustments

Cyber risk is constantly evolving. A policy that protects you today may not cover new threats tomorrow. Check renewal terms and whether your insurer offers periodic reviews to keep coverage current. Your policy should grow and adapt with your business and the changing cyber landscape. Cyber insurance is a smart move for any small business—but only if you truly understand what you’re buying. Knowing the difference between what’s covered and what’s not could mean the difference between a smooth recovery and a total shutdown.

Take the time to assess your risks, read the fine print, and ask the right questions. Combine insurance coverage with strong cybersecurity practices, and you’ll be well-equipped to handle whatever the digital world throws your way.

If you want help decoding your policy or implementing best practices like MFA and risk assessments, get in touch with us today. Our team is ready to help you take the first step toward a more secure future.

Article used with permission from The Technology Press.