Data Breach Insurance Basics

In today’s information age where it seems like our private information is continually at risk, there are new insurance options available to deal with this growing threat. On the consumer side, identity theft insurance is now a standard coverage in many automobile and homeowner insurance policies. However, what about the liability exposure for the businesses wherein the data is stolen? The answer is Data Breach Insurance.

Since it is a relatively new term, it may be helpful to define exactly what a data breach is. A data breach is a theft of or accidental release of private information about an individual or entity. This includes sensitive data such as Social Security numbers, bank account numbers, driver’s license numbers, and medical records.

Breaches can happen when a company’s computer network is hacked, an employee or vendor releases the information without authorization (such as the recent case of the NSA data release by an American vendor in Hong Kong), or equipment such as a laptop, smartphone, or computer disk is stolen. These occurrences are most common in government agencies, banks & other financial institutions, and medical care companies.

Data Breach Insurance can be taken out to cover an entity’s liability in the event that sensitive data was released from their organization, as well as to help restore their reputation. When a breach occurs, the liability exposure of potentially paying damages to those whose private records have been infringed upon could be detrimental. If that were the only thing to worry about, companies would have an easier time dealing with the issue.

However, the more immediate concern after a data breach is the public relations damage it can inflict. It is important to respond quickly to reassure the public that you are taking all necessary steps to rectify the situation and ensure that nothing like this ever occurs again within your organization. Data Breach Insurance addresses this need by offering immediate guidance with regulatory compliance, as well as covering response/public relations costs.