How are Cyber Insurance Premiums Calculated?

With more and more business being carried out online, companies and organisations face growing cyber threats, from ransomware attacks to data breaches. The potential financial losses resulting from these cyber crimes can be devastating, so many businesses are turning to cyber insurance to protect themselves. 

This article explains how cyber insurance premiums are calculated, what influences these insurance costs, and what steps you can take to save your business money on cyber insurance premiums.

How much does cyber security insurance cost?

The cost of cyber security insurance varies considerably, depending on:

  • The size and nature of your business
  • The industry in which you operate
  • The amount of coverage you want
  • The level of cyber risk you’re exposed to

Small businesses can find basic cyber insurance coverage quite affordable, while larger organisations with a significant online presence and vast databases can have higher premiums because of the increased risk they face from cyber criminals.

Here at Stanmore Insurance, your dedicated agent will find you the most competitive, bespoke quote that’s tailored precisely to your business needs and fits within your budget.

Does your industry affect the cost of cyber liability insurance?

The industry in which your business operates undoubtedly plays a crucial role in how much you pay for cyber insurance.

Some industry sectors are targeted more frequently by cyber criminals than others simply because of the nature of their operation or the type of data they handle. 

For example, financial institutions, major healthcare providers and global e-commerce companies typically handle sensitive client information, making them prime targets for cyber attacks.

In addition, businesses that are heavily reliant on technology, such as IT providers or software development companies, typically face higher premiums because of their increased exposure to cyber risks.

Do policy limits affect cyber insurance costs?

Policy limits refer to the maximum payout an insurance company will make if your business suffers a cyber-attack, and those limits directly impact cyber insurance costs. 

Of course, a higher policy limit will attract higher premiums because the insurer is taking on much greater financial risk. For that reason, a business that wants extensive coverage with higher limits will pay much more than a business opting for a more modest policy with lower limits.

When deciding on your policy limit, you must carefully evaluate the cyber risk exposure and potential financial losses to your business if you were to suffer a cyber attack. 

How are cyber insurance premiums calculated?

Insurance underwriters use sophisticated data analysis and risk assessment models based on a combination of qualitative and quantitative risk factors to calculate cyber insurance premiums. 

Basically, the premium you pay is based on the likelihood of your business suffering a cyber attack and the size of the resulting damages.

Some of the key factors that can influence your cyber insurance premium are as follows:

Company size and revenue

Larger businesses with higher revenues typically face greater cyber threats because of their expanded digital footprint, and that usually results in a higher premium.

Security measures

Businesses with robust cyber security measures in place can receive lower premiums since they demonstrate a proactive approach to mitigating risk. 

Historical claims

A business that has made claims for cyber incidents resulting in significant losses in the past will usually pay a higher premium, as will companies that have made frequent claims.

Industry sector 

As we mentioned previously, the industry in which your business operates will significantly impact the premium you pay because some industry sectors are more attractive to cyber criminals than others.

Data management practices

The type of data your business processes, stores and collects is critical when it comes to calculating cyber insurance premiums. Typically, companies handling valuable intellectual property or sensitive customer information will face higher premiums since they are more attractive to cyber criminals.

Third-party liability

Companies that work closely with third-party suppliers or have a large supply chain network are often subject to additional premiums since their exposure to cyber risks extends beyond their own infrastructure.

Employee training and awareness

Businesses that provide cybersecurity training for their employees can be viewed as a slightly lower risk than those that don’t, attracting a proportionately lower premium.

What factors are used by insurers in calculating cyber insurance premiums?

When calculating cyber insurance premiums, insurance underwriters typically assess the overall risk profile of a business, and that assessment commonly includes the following elements:

  • The strength or weakness of your business’s network security infrastructure and the effectiveness of encryption, firewalls and intrusion detection systems.
  • The measures you have taken to secure and protect sensitive data, including customer information, financial data and employee records.
  • If you have a well-defined and tested incident response program in place that will enable you to handle a cyber incident effectively.
  • How well and how quickly your business would be able to resume operation in the aftermath of a cyber attack.
  • How quickly your business can resume operations in the aftermath of a cyber attack.
  • Whether or not you have cyber security training programs in place for your employees in place to mitigate human-related risks.
  • Your business’s compliance with industry-specific cybersecurity best practices and regulations.

Can you save money on cyber insurance?

A comprehensive cyber insurance policy is essential in today’s digital landscape, and your business can take steps to potentially save money on premiums without compromising coverage. 

The helpful team at Stanmore Insurance will always find the most comprehensive, affordable cyber insurance policy for your company, but here are a few helpful tips on how your business could save money on cyber insurance:

Risk assessment and mitigation 

Some insurance companies offer lower premiums to businesses with robust risk management strategies, so carry out a comprehensive risk assessment to highlight any weaknesses in your cybersecurity arrangements, and put in place measures to strengthen your online security. 

Policy bundles

Some insurance companies offer a discount when bundling cyber insurance with other types of coverage, such as property insurance or general liability insurance, which could be handy if any of your other policies are due for renewal.

Cyber security training

If you can demonstrate to insurance companies that you provide regular employee training on cyber security awareness, that can reduce the likelihood of cyber incidents caused by human error and consequently attract a lower premium. 

Regular policy reviews

Periodically review and update your cyber insurance policy to be sure it remains in line with your business’s current risk profile and the coverage that you need. It could be that you are paying for coverage you no longer require. 

Employees cybersecurity experts 

Using cyber security experts to assess and improve your business’s security measures can attract lower premiums since that could mean your business presents a reduced risk to insurance companies.