Cybersecurity insurance is becoming an increasingly common requirement for organizations of all types and sizes. And for good reason — it’s a safety net at a time when data breaches are incredibly costly and disruptive to both business and client.
Registered investment advisory (RIA) firms are no exception. As the data held by RIA firms continues to become more valuable and complex, many of their clients feel compelled to require RIAs to have some form of cybersecurity insurance to keep client information and assets safe.
To ensure your RIA firm is adequately protected, it’s essential to understand what cybersecurity insurance is, what it typically covers, and why it’s crucial.
What is cybersecurity insurance?
Cybersecurity insurance, also known as cyber liability insurance or cyber insurance, is specifically designed to protect businesses from losses related to cyberattacks, data breaches, and other IT-related incidents. In exchange for a monthly or quarterly fee, the insurance provider will cover the costs associated with responding to and recovering from these incidents, up to the policy limit.
While most RIAs already maintain some form of professional liability insurance, such as errors and omissions insurance, these policies generally do not extend to cyber incidents. This makes cybersecurity insurance a vital part of your RIA firm’s risk management strategy.
What does cybersecurity insurance cover?
Depending on the price and type of your cybersecurity insurance policy, you can expect coverage for the following expenses if your IT assets are physically destroyed or stolen:
- Recovering and restoring altered or stolen data
- Repairing or replacing damaged or compromised IT systems
- Investigating and hiring forensics experts
- Notifying affected customers, vendors, and other parties
- Making cyber extortion payments
- Paying legal fees resulting from privacy violations
- Restoring identities of clients whose personally identifiable information (PII) was compromised
Cybersecurity insurance coverage varies per provider. Some insurers cover only first-party losses, while some include third-party losses, so always read the fine print before deciding on a policy.
Also, keep in mind that many policies do not cover preventable security issues caused by humans. This includes instances such as employees clicking on malicious links, IT admins failing to properly patch software, and other careless mistakes. It therefore pays to invest in staff training and a strong security strategy to ensure these problems don’t arise.
|Related reading: Can your RIA lower cybersecurity insurance costs with advanced security and employee training?|
Why do RIAs need cybersecurity insurance?
RIAs are especially vulnerable to cyberattacks. Not only does your firm store and manage vast amounts of sensitive financial data for your clients, but you often handle large sums of money. As a result, you are more likely to be targeted by hackers and cybercriminals looking for financial gain.
In addition, regulatory bodies like the Securities and Exchange Commission have moved to enforce stricter standards for how data is stored and safeguarded. This means that you could face serious penalties for not meeting these requirements.
By investing in a comprehensive cybersecurity insurance policy, you can rest assured that you’re taking the necessary steps to protect your firm and your clients from the costly consequences of a cyber incident.
However, it’s important to note that insurance companies now require more detailed documentation from RIAs about their IT setup before offering coverage. This can include everything from a detailed inventory of your hardware and software to information about the security measures you are currently implementing. In some cases, they may even ask for your Microsoft Secure Score.
For these reasons, it’s highly recommended that you enlist the help of an IT professional to complete all documentation required for your cybersecurity insurance. Your IT partner can also help beyond ensuring that everything is filled out accurately by seeing to it that the correct coverage is in place in case of an insurable cybersecurity incident.
Ultimately, cybersecurity insurance is a must-have for RIAs. Investing in the right policy can provide peace of mind from knowing your firm and your clients are protected from the financial, legal, and reputational damage of a cyber incident.
Working with a reliable IT partner like RIA WorkSpace can make the process of obtaining coverage easier, so you can be sure that your cybersecurity insurance policy is up to date and ready to go in the event of an attack. Contact us today to learn more about our services and how we can help your RIA firm stay secure.