News & views

Friday, December 02, 2016

Justin Clarke, Director of Underwriting and Pricing at NIG, explores the threat of cybercrime to small and medium-sized businesses, and explains why comprehensive cyber insurance coverage is essential.

Cyber criminals don’t go after small fish, right? Actually, nearly three-quarters of small and medium-sized businesses have suffered a security breach (SC1), and a report from the Federation of Small Business (FSB) says cybercrime targeting small and medium-sized businesses costs the UK an estimated £5.26bn a year (SC2). The report also notes that it costs small businesses disproportionately more than big businesses, when adjusted for organisational size.

Mike Cherry, National Chairman of the FSB, explains: “Small firms take their cyber security responsibility very seriously, but often they are the least able to bear the cost of doing so. Smaller businesses have limited resources, time, and expertise to deal with ever-evolving and increasing digital attacks.”

Why are smaller businesses a target?

Cyber criminals love smaller businesses because they have more digital assets than consumers, and less security than larger organisations. In fact, the FSB report found that only a quarter of small and medium-sized businesses have a strict password policy – and just 4% have a cyber attack strategy.

Phishing for small business

The most common cyber crimes affecting small and medium-sized businesses are phishing emails (49%), spear phishing emails (37%), and malware attacks (29%) (SC2). Other threats include ransomware (where data is seized and encrypted for ransom), hack attacks (where hackers access the company network), and Denial of Service (DOS) attacks which push a huge amount of data to a company’s website to make it crash.

Phishing emails send you to a website that looks legitimate, and ask you to update your account details. The fraudsters can then easily steal your personal information to commit identity theft.

Spear phishing attacks are even more sophisticated, and harder to spot. They target individuals within the organisation, often mimicking their colleagues, by using email headers and addresses to extort money. Statistics from cyber security firm Symantec show more than half of spear phishing attacks last December were against SMEs.

Malware attacks are just as damaging. You might click a link or unknowingly download malicious software (abbreviated to ‘malware’) designed to infiltrate your computer and steal sensitive information, extort money, or send unwanted advertising (adware).

Spear phishing hooks fishing retailer

Let’s look at a somewhat ironic, real-world example of a cybercrime event which recently impacted one of our customers. The business, a fishing tackle retailer, was caught out by a spear phishing attack just months after taking out a cyber insurance policy with NIG.

At the time, the company was shopping around for new office space. The account manager received an email from the managing director, asking him to pay £15,000 to a new account – presumably to secure a space. No eyebrows were raised, and the payment was made, however, the email hadn’t come from the managing director. It was sent by a cyber criminal using a spoof address.

The company quickly alerted the relevant people within NIG. As part of their policy we sent forensic experts to check the fraud came from outside the business, not from an employee, and had the client’s bank put a stop on the account. Their fast action meant only £3,276 was stolen; in part because fraudsters often drip-feed withdrawals in order to avoid detection. The claim was quickly settled, and the retailer could get back to focusing on fishing – and not phishing.

Why take out cyber insurance?

Without cyber insurance, the fishing tackle retailer would have had a different, and far more devastating, experience. After all, the average cost of a cyber breach to small and medium sized businesses is usually between £75,000 and £310,800 (SC3).

It’s not just stolen funds that business owners have to worry about. There’s also the cost of loss of data and damage to IT systems and networks as well as replacing any stolen or infected devices. There’s the cost of notifying your customers, and in some cases paying compensation, as well as re-building brand confidence through public relations advice and campaigns. There’s also investigation and legal costs, money spent responding to regulatory bodies and penalties from banks for losing customer credit card data. On top of all this there is the issue of damaged reputation and lost profit while your system is down. It’s a lot to lose and can often destroy SMEs who don’t have adequate cover in place.

That’s the true value of cyber insurance. It covers you against serious damage, loss of data, and the costs associated with a cyber-attack whilst helping you get back up and running sooner. A policy is imperative if your business holds sensitive customer information like names and addresses or bank information, or if you process payments, or do much of your business online. It should also be recognised that your standard business insurance policy probably won’t cover you for cyber-attacks.

It’s clear cyber insurance can minimise the damage caused by a cyber-attack, however, the best policy is to have robust prevention mechanisms in place. This means keeping your IT software and systems up-to-date, training your staff on safe online practices, and implementing formal policies to reduce your risk. Putting in place measures such as these, combined with comprehensive cyber coverage, will help keep your business safe from cybercrime.

Tips for choosing cyber insurance

As with all insurance, it’s important to choose your cyber insurance policy carefully. Check that it includes:

  • Cybercrime cover as standard as it’s not automatically included in all policies.
  • Adequate cover and adequate limits.
  • Cover for first-party risks (including the risk of cyber extortion and ransom demands on your business) and third-party assets (your customers’ data).
  • 24/7 support from cyber specialists which ensures a prompt response meaning you can minimise damage and get back to business sooner.
  • Cover for all your business devices from desktop and mobile through to other electronic office equipment such as printers etc.

NIG’s Cyber Cover policy includes all these features plus much more. This may explain why our policy received a 4/5* rating by an independent broker reviewer in Insurance Times earlier this year. The comprehensive cover that our product offers, including our 24/7 support, can go a long way to helping safeguard the future of your business should you ever be the victim of a cyber-attack, as demonstrated with our fishing tackle retail customer. Here’s what our Cyber policy also covers:

  • Cybercrime – financial loss from hacking, fraudulent input or alteration of data
  • Cyber liability – damages and defence costs attributed to a data breach
  • Data-Breach expense – the cost of expenses following a data-protection failure
  • Third party data storage – data held at a third party storage provider
  • Loss of business income following a cyber-event (Optional)
  • Damage, loss, corruption and breakdown of hardware (Optional)
  • Data corruption and extra costs (Optional)

You can find more information about NIG’s Cyber Cover product, including Key Facts, Sales Aid, Proposal Form and Policy Wording, on our website here

NIG. Here’s Why…

As well as having a great product in Cyber Cover, here are some key benefits of choosing NIG:

  • Established – we have more than 120 years of commercial underwriting expertise.
  • Focus – we’re 100% focused on brokers, and trade all of our products exclusively through UK brokers
  • Size and scale – as part of the Direct Line Group we have the strength and security of an A-rated underwriter, combined with the scale of a FTSE 100 company.
  • Comprehensive – our extensive range of products cater for businesses large and small.
  • Competitive – our one-quote-to-market principle provides a real edge for brokers.
  • Financial support – we can provide in-house surveying and risk management funding
  • UK-wide – we have eight regional offices across the UK, combining regional coverage with local expertise.

(SC1) https://www.gov.uk/government/news/government-urges-business-to-take-action-as-cost-of-cyber-security-breaches-doubles

(SC2) http://www.computerweekly.com/news/450298180/Small-businesses-bearing-the-brunt-of-cyber-crime-says-FSB

(SC3) http://www.pwc.co.uk/services/audit-assurance/insights/2015-information-security-breaches-survey.html