Cyber Liability Coverage

Protect Your Clients from Cyber Threats
By NIP Specialty Brokerage

Understanding Cyber Liability Coverage
Cyber Liability Insurance is a relatively new but rapidly developing area of insurance that addresses risks associated with online businesses, the Internet, and various data assets. Cyber crime is something that occurs every day and costs organizations billions of dollars every year. Costs include investigation of security breaches, repairing damage done to company systems and websites, disruption of business, even defending lawsuits and recovering from a tarnished reputation. Risks include data breach, network extortion, identity theft, privacy infringement, and many other forms of malicious as well as inadvertent damages.

Most companies don’t feel they need to be concerned about cyber liability, but in reality, any entity that houses or exchanges electronic data, any company with a website, and any organization that conducts business online is susceptible to the devastation that comes from cyber crime. In fact, according to recent studies such as the Verizon Communications Inc.’s 2010 Data Breach Investigations Report, roughly 80% of all companies will experience at least one data-related violation each year. If it results in the theft or loss of sensitive data, the costs can be staggering.

Even a company that already has liability coverage may not be sheltered from the repercussions of cyber crime. The biggest challenge seems to be that while traditional Property & General Liability policies, as well as most EDP policies, are centered on damage to physical property (such as computers or servers) most cyber crimes result in much more severe yet less tangible outcomes, like loss or destruction of sensitive data. Adding to the complexity, the wording in policies is often vague when it comes to this particular issue, and historically distinctions in what constitutes as tangible vs. intangible are often left as uncertainties to the insurance buyer.

In a constantly changing environment, an organization must ensure it protects itself from physical as well as cyber damages. According to a recent white paper released by Business Insurance, when assessing your own cyber security, watch for these frequent weak spots:

  • Poor encryption standards for databases or computers (particularly laptops)
  • Failure to utilize detection software
  • Unsatisfactory patch management (including implementation of necessary code to vulnerable systems) or failure to secure servers
  • Inadequate oversight of vendors or third-party providers
  • Lack of organization incident response plan• Insufficient website vulnerability testing

Acting to correct these commonly found flaws may substantially raise your defenses against both internal and external cyber crimes. In addition to protecting yourself physically, however, you must also consider what you need from the standpoint of adequate and accurate cyber liability insurance coverage.

One thing that is critical when considering the need for cyber coverage is to have an expert review conducted on your client’s existing policy to help you identify unfavorable policy provisions and negotiate coverage improvements for the benefit of your client. Brokers should carefully examine the scope of the insurance protection they have placed for their clients and not be over confident simply because the policy or endorsement includes the words “privacy” or “security” in its title.

Working with a wholesale broker who specializes in cyber coverage can save retail brokers the time and energy needed to learn the intricacies of this constantly evolving market. Furthermore, brokers can take advantage of wholesaler’s wide market access and the subject expertise necessary to assess their clients’ cyber exposure, analyze their current policies to determine existing coverage, and match coverage to their remaining exposure.

We at NIP Specialty welcome the opportunity to discuss a risk with you. Tap into our expertise and wide market access for the best quotes and the most comprehensive service.

You can contact NIP Specialty Brokerage at 800-446-7647 ext. 7515. Or email:

About NIP Specialty Brokerage
NIP Specialty Brokerage
is a wholesale brokerage operation targeting non-standard commercial risks underwritten by admitted and non-admitted specialty carriers, with a focus on the Construction Industry. NIP Specialty Brokerage assists agents and brokers in the structure and placement of complex insurance risks throughout the United States by accessing NIP’s brokerage expertise and relationships with global insurance markets.

NIP Group, Inc. 900 Route 9 North | Suite 503 | Woodbridge, NJ 07095-1003 | 800.446.7647