Earlier this year, New York City-based staffing agency Clarity bought cyber insurance for the first time. This spring it added more coverage.
“We were actually hearing about it from our clients,” said Elizabeth Wade, Clarity’s operations manager. “They were asking us about it and in order to prevent being behind the eight ball we felt like we really wanted to be proactive and get the insurance ’cause we knew it was something that was important to our clients, and then it was important to us as well.”
With a staff of 30, Clarity was looking to protect the information it takes from the clients it places, like their Social Security numbers and dates of birth. The initial coverage it bought from insurer CNA covered any legal costs and the costs of lost business that would come with a breach. This spring it added coverage for credit monitoring if its client data are hacked.
Clarity is one of a growing number of small businesses buying cyber insurance, and one of the reasons sales of this product are skyrocketing.
Robert Parisi, network security and privacy practice leader for insurance broker Marsh USA, a unit of Marsh & McLennan, told CNBC that on the heels of a 21 percent increase in Marsh’s cyber insurance sales in 2013, sales for the first half of 2014 are double what they were for the same time last year.
“The number of (data) breaches in 2013 certainly was the last straw in the camel’s back,” Parisi said, referring to well-publicized breaches like the one involving more than 110 million Target clients last winter. “A lot of people who were sitting on the sidelines. it got them buying.”
At an estimated $1 billion to $2 billion, 2013 sales of cyber insurance were a fraction of the $1.1 trillion in total U.S. insurance premiums last year. But Parisi sees the number growing exponentially in the foreseeable future.
“The growth trajectory, I see no sign of it abating,” Parisi said. “Cyber insurance is underpenetrated in the economy in general and we’re at the long end of the hockey stick heading upward.”
A 2014 study, “Net Losses: Estimating the Global Cost of Cybercrime,” conducted by software security firm McAfee for the Center for Strategic and International Studies, estimated that cybercrime costs the global economy $445 billion a year. The report also forecast the cost will rise as more consumers and businesses connect to the Internet, creating in turn a larger potential market for cyber insurance.
“Just about every business today needs cyber insurance,” said Bob Hartwig, president of the Insurance Information Institute. “More and more businesses are transacting online and the reality is it’s only going to increase as we move forward.”
Introduced more than a decade ago, cyber insurance’s growth has been spurred not only by an increase in cybercrime, but also by new regulations.
Most states now require companies to notify customers if there is a data breach. Cybercrime is also a growing concern in the boardrooms of publicly traded companies.
In response to public data breaches like those at Facebook in 2013 and the restaurant chain P.F. Chang’s in 2014, directors and upper-level executives are increasingly focused on boosting companies’ defenses and making sure their firms are ready to act in the event it happens to them. Parisi said that anytime a problem reaches that level of attention, companies are going to act.
Read more at http://www.entrepreneur.com/article/235355