The Ultimate Guide to Cyber-Risk Coverage for Sole Proprietorships
Small businesses come in all shapes and sizes. However, with over 33 million in the US, sole proprietorships are one of the most common types of business structures in the country. While it has its advantages, it also has its flaws.
The most obvious flaw is that most of the liability falls directly onto the owner. In today's world, that can be a serious problem without the right protection. Let's talk about the importance of cyber risk coverage for sole proprietorships.
What Is Cyber Risk Coverage?
Different cyber risk coverage options may cover various cyber threats that your business faces. These may include ransomware, phishing scams, and other attacks, depending on your policy. The results of these attacks can cause financial harm to a business.
For this reason, the goal of cyber risk coverage is to help protect businesses from the effects of a potential breach. Believe it or not, some of the worst effects aren't even what the attacker stole. More on that later.
Fortunately, there is coverage for the potential threats of cyber-attacks. However, they can vary widely between policies. So, is it worth it?
Do Small Businesses Need Cyber Risk Coverage?
Does an average small business really need coverage for these cyber threats, or are they overblown? There's no perfect answer for every business, but we can give you some important information about cyber threats.
Understanding Sensitive Data
To understand if you should protect your sole proprietorship business from the impact of a cyber-attack, consider if you hold any sensitive data about your staff, customers, clients, or business partners. Here are some examples:
- Phone numbers
- Credit card/payment information
- Customer/employee names
- ID/Social security numbers
- Medical histories
- Email addresses
If you do, you could benefit from cyber insurance if your business operates in the following manner:
- Accepts credit cards/digital payments
- Uses computers and mobile devices
- Stores business information in the cloud
- Stores employee information digitally
- Uses a database of personal information for customers
- Is located in a state with mandatory data breach notification laws
The list goes on. Unfortunately, almost every business fits one or more of these descriptions to some extent.
Cyber-attacks pose a risk to almost every business in the US. We've all heard of some of the major breaches and cyber-attacks in the news.
Believe it or not, a possible threat could be caused by a compromised password! But it isn't just password attacks. Social engineering attackers are using more sophisticated with technology and convincing employees to provide access to sensitive data.
Ransomware and other malware can also pose a threat. Once it's infected your network, it could impact your business.
Are Small Businesses A Target?
Did you know that small and medium-sized businesses are sometimes targets for cyber-attacks? When you think about it from the attacker's perspective, it makes perfect sense.
If you're a cyber thief, you may want to attack a large company. That's where the biggest prizes are, right? Well, getting through their high levels of security is no simple task.
This puts small businesses in the "sweet spot" for attackers. They expect minimal security with a relatively high reward of obtaining a lot of sensitive data and personal information.
How Can You Protect Your Business?
There are easy and important ways to help protect your cyber system, including:
- Hiring an in-house IT team, an IT consultant, or an agency
- Running anti-malware scans every week
- Having staff change passwords every 60 days
- Using two-factor authentication
- Obtaining secure file-sharing software
- Setting up a virtual private network for remote employees
Unfortunately, you can set up multiple protective measures and still face serious cyber risks. We're not suggesting these aren't worth your time. Following due diligence is important, but still imperfect.
For example, even with implementing these measures, a well-planned phishing scam or physical theft can still pose a threat to your business.
Costs to Businesses
The average cost of a claim for a small business small business owner was over $130,000 in 2022.
In the modern world, your data is your business and your business is your data. Even traditional businesses could rely on maintaining sensitive data to some extent. If you ever run customer credit cards, if you have a business bank account, staff files, or any other sensitive data, you could be at risk.
Not only can this cost you money outright, but it can hurt your business' reputation. Many businesses have lost value or may have experienced bad press and PR that came from a breach. If you have to comply with certain privacy laws including HIPAA regulations, you might be expected to pay penalties for negligence.
On top of that, there could also be legal fees, costs for recovery, and more. That's why it is important to consider cyber-risk coverage.
Finally, and most importantly, cyber threats are not only criminal. Accidents can happen, and they can pose a serious threat to your business.
For example, a backup system may fail to run or a malware system may overlook some code.
Of course, these are only a few examples. Still, it could allow an opportunity for someone to access your information and potentially steal your data, but how else can you prepare for potential cyber threats?
What Does Cyber Risk Coverage Include?
Again, every policy is different, and you will need to choose one that fits the needs of your business. However, here are some examples of the most important coverages in a cyber risk policy.
Unfortunately, the cost of investigating a breach falls on the business. With the right policy coverage, you could have these expenses covered.
You can use a cost estimate calculator to see if it could be worth it for your business but remember the alternative. Generally speaking, it could be better to have it and not need it than the other way around!
If you have legal fees as a result of a cyber incident, you could be left paying a large amount of money. With the right policy, it could help cover these expenses.
Consumer Notification Costs
Notifying consumers about breaches is the last thing any business owner wants to do, but sometimes it needs to be done. Without it, you could put your business in legal jeopardy.
However, this costs money to do. A cyber insurance plan may help cover these expenses and could help reduce the financial impact to your business.
For more information, check out our cyber insurance coverage it is included in a Business Owners Policy!
Is Cyber Risk Coverage Worth It?
There are many cyber risk coverage options to choose from, but overall, they can be worth it. If met with due diligence, you can help protect your business in the event of a cyber incident. Nobody wishes for a cyber-attack to happen, but it's important to be prepared for when and if they come.
Stay up to date with our latest tips for your business, and don't hesitate to contact us with any questions or for help finding the right policy for your needs!