5 reasons cyber insurance can be a worthy investment for your small business

5 days ago 11

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ZDNET's key takeaways

Small businesses are prime targets for cybercriminals.
Cyber insurance provides financial protection and means to assess and improve security.
SMBs should compare insurance costs to the frequency and impact of incidents.

Small businesses are not immune to cybersecurity incidents that can disrupt operations, compromise data, and hemorrhage precious time and money -- far from it! (We're defining small businesses as having 100 to 1,000 employees and $50 million or less in annual revenue.)

In this environment, cyber insurance has matured into a strategic tool for small businesses, providing not only financial protection but also a means to assess and improve their overall security posture.

Also: Why no small business is too small for hackers - and 8 security best practices for SMBs

Before delving into the details, let's establish the typical costs associated with such policies. Based on recent market data, the table below summarizes typical ranges for premiums and deductibles for selected coverage limits. These are tailored to small businesses, taking into account factors such as revenue, industry, and existing cybersecurity measures. Smaller firms with robust cybersecurity measures might secure rates at the lower end, while higher-risk industries, such as healthcare, could pay more.

Typical ranges for premiums and deductibles for selected coverage limits (illustrative)

Coverage Limit	Annual premium	Deductible/retention
$1 million	$1,200 - $7,500	$1,000 - $10,000
$5 million	$5,000 - $50,000	$5,000 - $50,000
$10 million	$10,000 - $100,000	$10,000 - $100,000

Sources: insureon.com, Cyberphore.com, and theagentsoffice.com.

We can now weigh these costs against the risks (frequency and impact) of common cybersecurity incidents -- such as data breaches, ransomware, and unplanned downtime -- to understand why investing in cyber insurance could be a smart move for small businesses.

How common are cyber incidents for small businesses?

Small businesses are prime targets for cybercriminals, often due to weaker defenses compared to those of larger enterprises.

Data breaches involving small and medium-sized businesses frequently stem from human error, which played a role in about two-thirds (68%) of all incidents analyzed (Source: Verizon Data Breach Investigations Report).
Ransomware attacks, in which hackers encrypt data and demand payment to decrypt it, are particularly prevalent. As many as eight out of nine (88%) ransomware incidents targeted companies with fewer than 1,000 employees, with global attacks rising 15% year-over-year.
Unplanned downtime from cyber incidents adds another layer of risk. Roughly two to three of every four small businesses experienced downtime lasting 8 to 24 hours, with recovery often taking at least a day.

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These frequencies underscore the important takeaway: These cyber risks aren't rare for small businesses; they're a highly probable reality.

The business impact of cybersecurity incidents

The true sting of cybersecurity incidents lies in the breadth of their business impact. Personally, I'm not a fan of statistics on "the average cost of a data breach," primarily because the average (mean) is just bad, misleading analysis when the full distribution of business impact has a wide range that's typically skewed toward the "long tail." At least the median would provide insight into the 50/50 mark -- but even then, the real business decisions about risk are made at the long-tail side of the curve.

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But that's a topic for another article. Key factors contributing to the total business impact include:

Direct recovery costs: Expenses for forensic investigations, data restoration, and system repairs can range from tens of thousands to hundreds of thousands of dollars, depending on the scale. This includes hiring specialized experts to identify and eradicate threats.
Lost productivity: Unplanned downtime severely limits (if not halts) normal operations, especially if key systems and applications are affected. Every small business should make an informed estimate of the total cost per hour of unplanned downtime for critical systems.
Lost current revenue during disruption: Short-term revenue dips from halted sales or services on revenue-generating platforms can range from annoying to devastating. Every small business should have an informed estimate of the total cost per hour for this factor as well.
Future revenue losses: Eroded customer trust from downtime could result in even higher business impact, not only from (permanently) lost revenue from attrition but also from higher costs (e.g., support, marketing) required to retain current clients.
Additional factors: Legal fees, regulatory fines, and notification expenses (e.g., informing affected customers of a data breach) can add tens of thousands of dollars to the total business impact.

Multiplying the frequency of occurrence by the range of potential business impact yields an annualized risk exposure curve that can easily eclipse the cyber insurance costs we examined in the table above.

How cyber insurance helps: from prevention to recovery

Today, a cyber insurance policy isn't just a payout -- it's a way to engage a proactive partner. Before underwriting, insurers assess your cybersecurity posture, potentially identifying vulnerabilities (e.g., outdated software or weak access controls). This "free audit" can reveal gaps, prompting improvements that in themselves can significantly reduce your risks.

In the event of an incident, policies and processes can facilitate a swift response and recovery. Modern coverage often includes expert teams for incident management and response, minimizing downtime and recovery costs.

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Cyber insurers now generally require baseline security capabilities to mitigate their risk of underwriting policies. Common prerequisites include:

Multi-factor authentication (MFA) on all accounts
Effective data backups and disaster recovery plans
Endpoint detection and response (EDR) tools
Regular patching and employee training
Encryption on devices and compliance with regulations such as GDPR or CCPA, as appropriate

Proof of the above is typically provided via detailed questionnaires or formal audits. Meeting these requirements not only secures coverage but also strengthens your defenses.

Spiceworks Ziff Davis State of IT 2026 data (see below) shows that common prerequisites for cyber insurance underwriting are in the mainstream for current adoption.

Current and planned adoption for selected cybersecurity

Common conditions, exclusions, and services provided

As with other familiar forms of insurance, policies come with caveats. Exclusions often cover intentional insider acts, nation-state attacks, third-party vendor failures, or failure to maintain designated security standards. Conditions might limit ransomware payments or require prompt reporting.

Also: Battered by cyberattacks, Salesforce faces a trust problem - and a potential class action lawsuit

On the other hand, services may extend beyond merely cash, including forensic investigations, legal counsel, customer notifications, credit monitoring, PR support, and even ransomware negotiation experts. Many insurers offer 24/7 hotlines and preventative resources, such as risk assessments.

5 reasons why cyber insurance can be worth the investment

Compare the premiums and deductibles (table above) -- as low as $1,200/$1,000 for $1M coverage -- to the frequency and impact of a single incident. You can work out the numbers for your own small business. In general, here are five reasons cyber insurance can be well worth the investment:

Proactive risk identification: The underwriting process uncovers weaknesses in your current cybersecurity posture, potentially saving thousands in avoided incidents.
Financial cushion for recovery: After the deductible, cyber insurance covers direct costs, helping to keep your small business afloat.
Rapid incident response: Access to experts reduces downtime and long-term damage.
Comprehensive impact mitigation: Your policy is designed to address losses in productivity, revenue, and reputation.
Expert services and peace of mind: From legal assistance to negotiations, your policy may provide invaluable resources well beyond your internal capabilities.

Also: How to actually use AI in a small business: 10 lessons from the trenches

For small businesses, cyber insurance can bridge the gap between vulnerability and resilience. While not a silver bullet, it can provide a cost-effective shield against uncertainties that could otherwise prove catastrophic. Consult a broker to tailor a policy to your specific needs.

Derek E. Brink, CISSP, is vice president and research fellow, Aberdeen Strategy & Research (a division of Spiceworks Ziff Davis). He serves as an adjunct faculty for Harvard University and Brandeis University.

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