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Cyber insuranceGrowing demand for cyber insurance, especially by small and mid-size businesses

Published 6 February 2015

Technology startup firms are leading the way in ensuring not only the security of their customers, but their own security as well. American businesses are expected to pay $2 billion for cyber insurance premiums in 2014, a 67 percent increase from just one year earlier. More than fifty U.S. insurance carriers are now offering cyber insurance policies. Even more impressively, many of these are focusing on small and mid-size businesses.

Technology startup firms are leading the way in ensuring not only the security of their customers, but their own security as well.

As Entrepreneur reports, data companies like Bowman & Partners, which mines brand and consumer information for large corporate clients, have shifted most of their operations to the cloud, which offers convenience but also many security issues. These companies ae finding that covering themselves with new insurance policies is not only increasing business, but allowing for more strategic risks.

“Cybercrime is in the news all the time, but there’s a huge misconception that it only impacts big companies,” said Ted Devine, the CEO of small-business insurer Insureon. “The reality is that anybody that has forms of client data exposes themselves to cyber risk. Whether it’s a mom who owns a cupcake store that might take credit cards or a consulting firm that deals with healthcare data, the risk is incredible. Running any business without cyber protection is like jumping out of a plane without a parachute.”

Bowman & Partners approached their general liability insurer, Business Insurance Now (BIN), after coming close to sealing a data contract with a major healthcare provider. Seeing the risks of working with that client on a cloud-based system, Bowman & Partners asked BNI whether it was also possible to cover a real-world data security breach. BNI drew up a plan, and the company found itself more marketable as a result of its ability financially to insure a data breach.

Bowman & Partners is not unique. American businesses are expected to pay $2 billion for cyber insurance premiums in 2014, a 67 percent increase from just one year earlier. While it is small change compared to the $1 trillion spent yearly by the broader industry, many experts and analysts predict insurance to be one of the fastest growing market in coming years.

Cyber insurance policies can be traced back to the origins of the dot.com boom during the 1990s.

“We saw that [the internet] was a fundamental change in the way companies did business, and that it was going to create a fundamentally new type of risk,” said Robert Parisi, a cyber product leader at the insurance broker March USA. “Traditional property and casualty policies didn’t embrace these new risk, and there was a need for insurance that actually responded to them.”

Policies can be scaled to cover a broad range of business sizes and data volumes. More than fifty U.S. insurance carriers are now offering cyber insurance policies. Even more impressively, many of these are focusing on small and mid-size businesses — like Ridge Insurance Solutions, founded by Tom Ridge, the first secretary of the U.S. Department of Homeland Security.

“The intellectual property in these companies is America’s future,” Ridge said. “This is where a lot of R&D is going on, and we have to protect it as best we can.”