Cyber Insurance for Startups

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As startups increasingly rely on technology and digital platforms, they also become more vulnerable to cyber threats such as data breaches, hacking, and phishing attacks. To mitigate these risks and safeguard their business operations, startups should consider investing in cyber insurance. Cyber insurance for startups provides comprehensive coverage that can help protect against financial losses, legal fees, and reputational damage caused by cyber attacks. In this article, we will explore why cyber insurance is crucial for startups, the different types of

As startups increasingly rely on technology and digital platforms to run their operations, they also become more vulnerable to cyber threats such as data breaches, hacking, and phishing attacks. Unfortunately, cyber attacks can happen to anyone, and startups are no exception. In fact, startups are often seen as easy targets for cyber criminals due to their limited resources and lack of cybersecurity expertise. That’s why it’s crucial for startups to invest in cyber insurance to protect their business operations and mitigate the risks associated with cyber threats.

Cyber insurance for startups provides comprehensive coverage that can help protect against financial losses, legal fees, and reputational damage caused by cyber attacks. This type of insurance is designed to address the unique risks faced by startups in the digital age, such as the loss or theft of sensitive data, business interruption due to cyber attacks, and liability claims from third parties affected by a breach.

What is Cyber Insurance For Startups?

Cyber insurance generally covers your business’ liability for a data breach involving sensitive customer information, such as Social Security numbers, credit card numbers, account numbers, driver’s license numbers and health records.

Benefits of Cyber Insurance for Startups

Startups face unique challenges when it comes to cyber risk management. They often have limited resources, lack of technical security expertise, and limited budgets. Cyber insurance can be a great way to help protect a startup from the financial losses that can occur when a cyber attack or data breach occurs. Here are some of the benefits of cyber insurance for startups:

1. Financial Protection: Cyber attacks can be incredibly costly, and many startups can’t afford the high costs of recovering from a breach. Cyber insurance can help provide financial protection against the costs associated with a cyber attack, including costs to notify affected users, investigate the breach, and fix the underlying vulnerabilities.

2. Credibility: Having cyber insurance signals to customers, partners, and investors that a startup takes cyber security seriously. This can help to build trust and credibility for the brand.

3. Access to Expertise: Cyber insurance policies often include access to experts who can help investigate and respond to a breach. This can be invaluable to startups who don’t have the in-house technical expertise to handle a cyber attack.

4. Risk Management: Cyber insurance can help to incentivize startups to improve their cyber security posture, as policies often include incentives for companies to take proactive steps to reduce their risk.

Overall, cyber insurance can be a great way for startups to protect themselves from the financial losses associated with a cyber attack, as well as build trust and credibility with customers and partners.

Types of Cyber Insurance Coverage

When it comes to cyber insurance coverage, there are several different types of policies that startups should be aware of. Each policy offers its own unique protections and benefits, and choosing the right policy will depend on the specific needs and risks of your startup. In this section, we’ll explore some of the most common types of cyber insurance coverage and what each one entails.

a. Data Breach Insurance

Data breach insurance is perhaps the most well-known type of cyber insurance coverage. It provides financial protection in the event of a data breach or other unauthorized access to sensitive data. This type of policy covers the costs associated with responding to the breach, such as investigating the cause, notifying customers, and offering credit monitoring services. It may also cover legal fees and settlements in the event of a lawsuit resulting from the breach.

For startups, data breach insurance is especially important since they often have limited resources to deal with the aftermath of a breach. Without proper coverage, a data breach could easily bankrupt a small startup.

b. Cyber Liability Insurance

Cyber liability insurance is another common type of cyber insurance coverage. This type of policy provides protection in the event that your startup is found liable for damages resulting from a cyber incident. This can include things like a data breach or other security breach that leads to financial losses for your customers.

Cyber liability insurance can cover a wide range of damages, such as the costs of forensic investigations, legal fees, and settlements or judgments resulting from lawsuits. For startups that handle sensitive customer data, this type of coverage is critical since a single incident could result in significant financial damages.

c. Business Interruption Insurance

Business interruption insurance is a type of coverage that provides financial protection in the event that your startup’s operations are disrupted due to a cyber incident. For example, if a ransomware attack renders your company’s computer systems unusable, business interruption insurance could cover the costs associated with the resulting downtime.

This type of coverage is particularly important for startups that rely heavily on their computer systems to conduct business. Without proper coverage, a cyber incident could result in significant financial losses due to lost productivity and revenue.

d. Network Security Liability Insurance

Network security liability insurance provides protection in the event that your startup is found liable for damages resulting from a security breach on your network. This type of coverage can help cover the costs associated with investigating the breach, notifying customers, and providing credit monitoring services.

Network security liability insurance can also cover legal fees and settlements resulting from lawsuits filed by customers or other parties affected by the breach. For startups that rely heavily on their network infrastructure, this type of coverage is crucial to protect against the financial risks of a security breach.

Overall, cyber insurance coverage is a crucial component of any startup’s risk management strategy. By understanding the different types of coverage available and selecting the right policy for your startup’s specific needs, you can protect your business from the potentially devastating financial impacts of a cyber incident.

Who Needs Cyber Insurance For Startups

  • You should have cybersecurity insurance if you handle customer data or store information about your business online.
  • Cybersecurity insurance can cover the cost of notifying your customers about a breach, legal defense and more.
  • Data breach insurance and cyber liability insurance are types of cybersecurity insurance.
Healthcare

Hundreds of thousands of patients rely on you to protect their personal identifiable information (PII).

Financial Services

The average cost of a data breach is more than $4 million, and financial services are first on most cybercriminals’ target list.

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SaaS

Notification costs, lost income, and cyber extortion losses equal a tough rebound for this industry.

Ecommerce

The damage to your reputation alone could cause your company to shutter after a cyberattack.

Why Your Startup Needs Cyber Insurance

As a business’s reliance on technology increases, so does its vulnerability to cyber threats. While every business has a unique risk profile to determine whether you need cyber insurance, there is only one question you need to answer. Do you conduct any portion of your business online? It could be as minimal as communication with employees through email or as extensive as building your entire business in the cloud. Your answer was yes, right? That means cyber insurance is not a want but a need.

There is estimated to be a ransomware attack on a business every 11 seconds, and the average time to identify and contain a data breach is 287 days.  This means that by the time you identify an attack, it might be too late. While that might seem dramatic, it is important to realize that 60% of small and midsized businesses go under within six months of a data breach or cyberattack. By building cyber resilience into your business through both cyber insurance and cyber security, you lower your overall risk both proactively and, in the case that it is needed – reactively.

Your business’s vulnerabilities are constantly increasing, in parallel with increasing cyber risk. The constant growth in risk is impacted by the applications your business uses and the people who access them – including employees, vendors, and even customers. Every person is an additional vulnerable link for external threats to access protected networks and data.

According to the International Risk Management Institute, less than 15% of SMEs are confident that their cyber threat strategy can detect and respond to cyberattacks, with two-thirds of them reporting an attack in a 12-month span.

What are the most common Cyber threats and attacks on Startups?

While the types of cyberattacks are continually evolving as attackers become more effective and find new ways to exploit weaknesses and evade detection – no matter the method, any attack can paralyze a business. What are some of the most common types of attacks businesses experience?

Social Engineering
  • Social engineering is the exploitation of human interaction to trick an individual into providing compromising information, making purchases or transferring company funds. The most common types of social engineering attacks include email, funds transfer fraud, telecommunications fraud, and crypto-jacking attacks.
Phishing and Spear Phishing
  • Phishing is a form of social engineering in which fraudulent communication, typically through email, appears to come from a trustworthy source. It contains a malicious attachment or link to a compromised website and asks for confidential information such as financial details, system credentials, or other sensitive data to access otherwise secure details.
  • Spear phishing follows the same approach as phishing but is much more targeted to specific organizations and individuals with very personalized messaging—88% of organizations worldwide experienced spear phishing attempts in 2019. While phishing thrives on the quantity of outreach, spear fishing focuses on quality.
Malware, Ransomware, System Intrusion, and Bricking
  • Malware is malicious software designed to damage computers, steal data and information, mine cryptocurrency, and compromise networks. This includes trojan horses, viruses, spyware, crypto-jacking, and ransomware.
  • Ransomware is a type of malware that utilizes encryption to hold an organization’s information or data at ransom. It is distributed by email attachments, application downloads, or website scripts and is designed to target entire networks and quickly paralyze entire organizations. To access the encrypted files and decrypt them, the demanded ransom must be paid, or the files are destroyed.
  • Bricking is when technology equipment such as devices or servers is the victim of a malware attack and loses all functionality, eventually requiring replacement.
DDoS
  • Distributed Denial of Service, or DDoS, is a malicious attack that floods a network with an extenuating amount of traffic, so much so that a network is overwhelmed and cannot communicate and operate, ultimately crashing it.
Basic Web Application Attacks
  • Basic web application attacks are simple attacks that compromise an application in just a few steps. This could be anything from gaining email access to repurposing an application.
Lost and Stolen Assets
  • When a device such as a computer or a cellphone that is host to sensitive files is missing either through misplacement or theft.
Privilege Misuse and Insider Threats
  • Malicious use of legitimate privileges in an organization, typically by an internal actor such as an employee. They typically use insider access to appropriate data they are not authorized to.

What is the right amount of Cyber Insurance for Startups?

There is no one size fits all for cyber insurance. Determining limits varies extensively because each individual business has unique risks that are further complicated by their industry, customers, cybersecurity implementation, and data storage policies and procedures.

The amount that is right for you is based on a compilation of your risk factors along with your business’s threshold for risk. As a startup, you should have a minimum of $1M in coverage for both first and third-party liability. At $1M,  39% of small businesses pay less than $1,500 per year on average for their cyber insurance.

Because no two policies are the same, it is imperative to make sure that the areas in which you need the most coverage, you have ample capacity in your policy and a clear understanding of the sub-limits that exist across your coverage so that you are not underinsured. Therefore, it’s important to do your due diligence in evaluating your options and fully understand any obligations you are required to follow to make sure your claim is honored in the case of an incident.

What should your Cyber Policy for Startup Cover?

What your insurance should cover varies based on your industry and business needs as well as third-party requirements. But there are some key elements of coverage that are essential. This includes business interruption, network security, privacy liability, media liability, and errors and omissions.

–   Business Interruption covers your business in the event of a cyber incident that precipitates a network interruption that causes lost profits and direct expenses.

–   Network Security covers your business in the event of a cyber incident that causes network security failure such as a data breach, malware, ransomware, or cyber extortion.

–   Privacy Liability covers your business in the event of a cyber incident that requires litigation or a settlement.

–   Media Liability covers your business in the event of a cyber incident that leads to intellectual property infringement.

–   Errors and Omissions covers your business in the event of a cyber incident that prevents your fulfillment of contractual obligations and delivery of services.

It is crucial to remember that while these are the core components of coverage, there are opportunities for additional and distinct coverage based on your startup’s unique needs. This includes enhancements in coverage for social engineering, reputational harm, bricking, forensic investigation and more. This should be determined based on the needs of your business and not singularly benchmarked by the needs of industry peers. Your agent or broker will guide you through what will be required specifically for your business.

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What Does Cyber Insurance for Startups Cover?

Cyber insurance policies vary, and coverage depends on the needs of your business – there is no one size fits all policy. Typically, coverages are divided among commercial general liability, first-party liability, third-party liability, and technology errors and omissions. Each type of insurance has different protections to address specific circumstances.

General liability insurance does not cover cybersecurity incidents. It covers claims related to property damage and physical injuries.

Cyber Insurance or Cyber Liability Coverage covers a variety of levels of insurance depending on what needs coverage; this includes sections for 1st party and 3rd party liability claims.

First-party liability insurance

This protect your business against the financial impact of a data breach or cyberattack on your company. Essentially it covers damages from covered cyber losses on your own network, and as the policyholder it protects you from potential financial fallout. This coverage covers expenses incurred when your systems or networks are breached and data is stolen. This includes employee and customer information and helps lessen the impact on your company. This could include:

  • Legal counsel
  • Recovery of lost or stolen data
  • Services to notify customers
  • Lost income due to business interruption
  • Public relations and crisis management
  • Cyber extortion and fraud
  • Investigative forensic services
  • Fees, fines, and penalties

Third-party liability insurance protects you from your clients in instances in which they file a lawsuit following a cyber incident, such as a data breach that is your fault. This coverage covers your business’s legal expenses for your defenses.  This also includes:

  • Payments to consumers affected
  • Related claims and settlement expenses
  • Losses related to defamation, copyright, or trademark infringement
  • Costs for litigation and any regulatory inquiries
  • Accounting costs

Technology errors and omissions insurance, or professional liability insurance, protects your company from your clients if they file a lawsuit following an incident in which your company makes a critical error that financially harms a client. The circumstances in which this coverage is used have a wide range from oversights and mistakes to failure to deliver contracted services and professional negligence. This insurance covers:

  • Attorney fees and court costs
  • Money to settle lawsuits
  • Legal judgments
  • Additional court costs

What Does A Cyber Policy for Startups Not Cover?

Similar to many other insurance policies, cyber liability coverage has exclusions. For example, cyber insurance doesn’t cover the following claims:

1. Loss of value due to IP theft

2. Internal technology system upgrades

3. Possible future lost profits

Remember that cyber-related losses can occur with other threats, so it’s vital to know the gaps your insurance policies might create. Lastly, lawsuits routinely involve claims not covered by non-cyber policies, thus launching the idea of “silent cyber,” where some cyber-related incidents aren’t explicitly covered or excluded in traditional insurance policies. It’s worth exploring these gaps with a trusted commercial insurance broker to ensure adequate coverage.

How to Shop for Cyber Insurance for Startups

The cyber insurance market is continually evolving and adapting to the continuously changing threat landscape. This means how coverage is built is different now than it was even just a year ago. And with this, it is important to be aware that not all cyber insurance policies are created equal. If you already have coverage, you’ll want to review it. If not, it’s time.

One of the key elements in buying cyber insurance is to purchase it early in establishing your business. Why? The cost of cyber insurance is impacted by various factors, including the number of customers, revenue, payroll, and the types of data you store. So generally, the earlier you purchase your policy, the lower the cost of your coverage.

It is important to understand that while this is true for most startups, there are certain industries that detract from this generality and can experience difficulty in finding the same coverage. This typically affects industries highest at risk for attacks which include finance, manufacturing, energy, and retail, and those that carry higher volumes of sensitive data, such as healthcare and information technology.

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Where to Find Cyber Insurance for Startups?

If your startup already has a commercial general liability policy or you have an agent you work with, you will want to start there. If not, here are a few companies and brokers who specialize in cyber insurance.

Companies

 Vouch – provides coverage to early-stage tech startups and can be purchased online

 The Hartford – provides coverage when paired with purchasing a general liability policy

 Corvus Insurance – provides higher coverage limits of $5M+

Brokers

o   NFP

o   AON

o   Marsh

It’s important that when deciding on an agent or broker that you understand their level of experience and familiarity with your industry and businesses like yours. Some important questions to ask include:

–   What types of claims have your clients filed?

–   What is your familiarity with our industry and its common risks?

–   Are your policies flexible to adapt as we grow?

Cost of Cyber Insurance for Startups

As with most commercial insurance policies, the cost of cyber insurance depends on several factors. Following are some of the main points insurance carriers will consider when calculating your premium.

Data: What type of data is being collected, and how much is being collected?

Controls: Sometimes, shareholders think that a funding round might have “watered down” or diluted their stake in the company.

Industry: A payment processor is more likely to be attacked than a cookie store with an online presence and loads of stored customer information.

Customer base: The more customers, the higher the potential severity of a data breach. Suppose the customers are large companies/institutions with deep pockets and a lot to lose. In that case, underwriters will recognize the increased risk of expensive litigation in the event of a data breach with plenty of affected customers.

Revenue: This is the primary factor for determining rate change on renewal

Top 10 Cyber Insurance Startups

Here are top 10 cyber insurance startups and insurtechs, what they offer and how they have performed in the fundraising stakes.

10. Stoïk

Funding to date: €15mn

French cyber insurtech Stoïk is one of a number of insurtech startups seeking to make cyber insurance more accessible to small and medium-sized enterprises (SMEs). It offers a digital ‘broker platform’ for its partner brokers, which is designed to facilitate the sale of cyber insurance. Stoïk combines that platform with several risk monitoring and cybersecurity tools, including a weekly scan of a company’s IT infrastructure and phishing awareness tools. It was founded in 2021 by a group of young software, insurance and cybersecurity insiders and announced it had raised €11mn in Series A funding last June.

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9. Elpha Secure

Funding to date: $20mn

The New York-based startup Elpha Secure combines proprietary cybersecurity software with coverage to improve risk transfer. Elpha Secure provides a groundbreaking cyber protection solution for small and midsize businesses that marries proprietary cybersecurity technology with insurance policies – indicative of a broader transition towards ‘preventative’ insurance across the whole of the cyber space. Last October, Elpha Secure Technology raised US$20mn in a Series A round.

8. Eye Security

Funding to date: €21.5mn

Based in the Netherlands, Eye Security says it is on a mission to insure and secure all European companies. It provides an all-in-one package that combines 24/7 cybersecurity with a cyber insurance product, including risk monitoring and incident response. It represents a holistic approach to cyber insurance and protection that starts from as little as €8.99 per employee per month – an ideal price point for cash-strapped and budget-squeezed SMEs. The recipient of over €21mn’s worth of funding, Eye is rapidly expanding, opening an office in Belgium and looking at launching in Germany as well.

7. BOXX Insurance

Funding to date: $25mn

Toronto-headquartered BOXX Insurance also combines cyber insurance with cybersecurity tools to try and prevent loss or breaches from happening in the first place. The insurtech has been on a pretty impressive growth journey of late: it achieved its target of growing tenfold in the last two years and currently protects over 250,000 individuals and 10,000 businesses. Last month, the cyber insurtech BOXX got $15mn in backing led by Zurich, the insurance industry heavyweight, as part of its Series B round.

6. Axio

Funding to date: $30mn

Axio describes itself as a “unified platform to reduce cyber risk”. It combines rapid cybersecurity assessments with cyber risk quantification that helps internal stakeholders justify cyber budget allocation, as well as cyber insurance stress testing that identifies gaps or weaknesses in your cyber cover.

The company was founded in 2016 by cybersecurity architect Dave White and former insurance executive Scott Kannry, who both noticed a gap in the market for a platform that balances technology controls with insurance policies. Axio has secured $30mn in funding to date, including most recently a $23mn round last August.

5. CyberCube

Funding to date: $105mn

San Francisco-based cyber risk analytics platform CyberCube is used by insurers and brokers alike. CyberCube’s cloud-based platform allows insurers and insurance brokers to gain greater insights into their exposure to cyber threats while enabling their clients to better protect themselves against attack.

Despite only being founded seven years ago, CyberCube has built up an impressive customer base comprising some of the world’s largest and most sophisticated (re)insurance and broking entities. In 2022 alone, it signed strategic partnerships with 19 different firms including Relm Insurance and Duck Creek Technologies.

4. Cowbell Cyber

Funding to date: $123mn

Cowbell Cyber is a leading provider of cyber insurance that provides standalone, tailored and easy-to-use coverage for SMEs. Founded in 2019, the insurtech uses a unique AI-based approach to risk selection and pricing, and Cowbell’s continuous underwriting platform, powered by Cowbell Factors, means the insurance process from submission to issue takes less than five minutes. In 2022, Swiss Re and Cowbell Cyber announced a new partnership that would bring “a new class of cyber insurance products” to customers.

3. Envelop Risk

Funding to date: $135mn

Envelop Risk is a specialty cyber underwriting firm, combining decades of insurance industry expertise with sophisticated cyber and machine learning tools. Based in London, it provides pricing, risk analysis and underwriting to insurers and reinsurers in a data-driven way. Founded in 2016, it is led by Co-Founder and CEO Jonathan Spry and Co-Founder COO Paul Guthrie, who between them boast more than four decades’ worth of experience across technology, insurance and investment banking. The firm has raised in the region of $130mn to date.

2. At-Bay

Funding to date: $295mn

The first entry on our list to top $200mn in all-time funding, San Francisco-based digital insurtech At-Bay helps companies to do exactly that – to keep cyber risks at bay. At-Bay insurance policies offer up to $10mn in limits to businesses with up to $5bn in revenue, for both primary and excess cyber and tech E&O coverage.

Its technology platform for brokers delivers fully automated underwriting, bindable quotes in seconds and actionable security insights. The firm is reaping the rewards of its success: as well as raising $295mn from investors, its annual recurring gross written premiums surpassed the $360mn mark in 2022 and, last month, At-Bay launched new admitted cyber insurance for small firms.

1. Coalition

Funding to date: $770mn

By far the biggest fundraiser in this list, Coalition has made some of the biggest waves within the cyber insurance sector. Its ‘Active Cyber Insurance’ product is designed to prevent digital risk before it happens, combining the power of technology and insurance to help organisations identify, mitigate and respond to digital risks.

In July 2022, the company, which was founded in 2017, announced a US$250mn investment round which boosted its valuation to US$5bn. Then, in October, the cyber insurtech launched a $300mn-backed reinsurer called Ferian Re.

Conclusion

In today’s digital age, cyber threats are becoming increasingly prevalent and sophisticated. Startups, in particular, are highly vulnerable to these threats as they often lack the resources and expertise to effectively protect themselves against cyber attacks. That’s why cyber insurance is a must-have for startups.

In this article, we’ve covered the key points you need to know about cyber insurance for startups. We’ve explained what cyber insurance is and how it differs from other types of insurance. We’ve also outlined the different types of coverage typically offered by cyber insurance policies, such as data breach and cyber liability insurance, and explained how each type of coverage can benefit startups.

Furthermore, we’ve discussed how startups can choose the right cyber insurance policy for their specific needs by considering factors such as coverage limits and deductibles. We’ve also shared real-life examples of startups that have benefited from having cyber insurance coverage, demonstrating the importance of having this type of protection.

In conclusion, cyber insurance is not a luxury but a necessity for startups operating in today’s digital landscape. By investing in cyber insurance, startups can mitigate their risk of cyber attacks and protect their business from potential financial losses and reputational damage. We encourage startups to speak with an insurance agent to learn more about their options for cyber insurance coverage and to take proactive steps to safeguard their business. Don’t wait until it’s too late – protect your startup with comprehensive cyber insurance coverage today.