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Cybercrime is as lucrative as ever, generating millions in illicit revenues for threat actors. Between 2021 and 2023, global data breaches rose by 72%, breaking all previous records.
Meanwhile, data breach costs continue to rise. The average cost of an enterprise data breach in 2024 is $4.88 million — another all-time high.
This puts managed service providers (MSPs) in a tight position. Cyber liability insurance can help reduce exposure to steep losses associated with cyberattacks.
Understanding MSP Cyber Liability Insurance
Cybercriminals target MSPs to gain access to customer data and infrastructure. Almost all MSPs have suffered a successful cyberattack in the last 18 months. Nine out of 10 report facing more attacks now than during the height of the pandemic.
Cyber liability insurance gives MSPs a valuable backup plan in the event of a catastrophic data breach. A good insurance plan can significantly soften the blow of an advanced cyberattack.
What Is MSP Cyber Liability Insurance?
Cyber liability insurance provides coverage against cyberattacks and data breaches. This protects MSPs from the potentially unlimited damages they would otherwise be exposed to after an attack. A cyber insurance policy may cover investigation and recovery expenses, ransom payments, and more.
Why Do MSPs Need Cyber Insurance?
MSP cyber insurance provides financial protection against losses incurred after a cyberattack. That can include covering incident response actions, investigative efforts, and legal costs. This limits the potential damage that a successful cyberattack can cause.
The Importance of Cyber Insurance for MSPs
Cyber insurance allows MSPs and their customers to manage cyberattack risk more effectively. Even the most secure organizations cannot guarantee every attempted attack will fail. A good insurance policy provides valuable resources when they are needed most.
Types of Cyber Insurance for MSPs
There are several different types of MSP cyber insurance policies. Each policy covers different types of damages to a varying degree. Many policies cover first-party and third-party damages separately.
First-Party Cyber Insurance
This type of cyber insurance policy protects against cyberattacks and data breaches. It covers the costs associated with the event itself — like incident response, data recovery, and ransom payments. These first-party costs are damages that stem directly from the cyber incident.
Third-Party Cyber Insurance
This type of cyber insurance policy protects against liability claims made by third parties. If individuals or organizations file court claims against you for failing to protect their data, this policy would cover the legal fees, court expenses, and settlement payments. Non-compliance fines are also covered by third-party cyber insurance.
Specialized Policies for MSPs
MSPs have unique legal and financial exposure to cyberattack damages. Specialized MSP cyber insurance policies may include both first-party and third-party coverage. These contracts may feature an increased indemnity that matches the risk of third-party damages to multiple clients.
Key Coverage Areas of Cyber Insurance
Cyberattack incidents are different from most other types of insurable events. As a result, cyber insurance policies typically provide multiple types of coverage. Each of these coverage areas may have its own terms and conditions, with unique indemnities for each.
Data Breach and Privacy Liability
This type of coverage focuses on the immediate costs of a data breach that exposes sensitive information. As liability insurance, it protects the organization from third-party claims. For example, it may cover settlement for a client that sues their MSP for failing to protect valuable intellectual property.
Network Security Coverage
This type of coverage reimburses the MSP for first-party losses caused by a cyber incident. That includes bringing in third-party IT forensics teams, setting up a call center to notify customers of the incident, and investigating the incident itself.
Business Interruption Coverage
Cyberattacks often lead to system failures that interrupt normal business operation. The average cost of downtime for enterprise organizations is $9,000 per minute. Business interruption coverage provides payment for MSPs that suffer downtime as a result of cyberattack.
Errors and Omissions Insurance
Errors and omissions coverage protects MSPs against damages related to unfulfilled contractual obligations. If a cyberattack interrupts your organization’s ability to carry out routine operations for customers, this coverage will pay for the legal costs associated with customer disputes.
How to Select the Best Cyber Insurance Policy
Every MSP has a unique security risk profile. The best cyber insurance policy is the one that meets that profile most closely. Not all policies cover the same types of events, and additional coverage often comes at a higher price.
Assessing Your Risks and Needs
As an MSP, your security risk profile is largely defined by your client portfolio. If your customers are high-value targets (like manufacturers and financial service providers), your cyber insurance needs will reflect that. Your tech stack and access to in-house security expertise will also play an important role here.
Comparing Policy Features and Limits
Most insurance policies follow a general structure. Enhanced protection against cyber risks comes at a higher price. Your policy should cover the cyber incidents most likely to occur and provide some protection against less likely attacks. Be mindful of policy limits that might make you liable for damages in large-scale supply-chain attacks.
Choosing the Right Insurance Provider
Cyber insurance is a relatively new phenomenon. Pricing and terms are important when selecting a provider, but a good reputation is vital. Higher-quality insurance providers will often require customers to demonstrate compliance with industry-standard frameworks. Be prepared to showcase your adherence to these regulations.
Cost Considerations
Cyber insurance premiums typically cost between $1,000 and $7,500 annually for small businesses. Large organizations pay much more, but they also have more opportunities to reduce costs. Implementing secure technologies and adopting compliant workflows can significantly reduce cyber insurance premiums for MSPs.
Common Challenges MSPs Face with Cyber Insurance
Cyber insurance policies can be complex. MSP leaders must pay close attention to the terms and conditions of the policy before signing an agreement. Here are three key areas to focus on when considering MSP cyber insurance:
1. Understanding Policy Exclusions
Cost-effective policies do not generally cover every type of security event. Your policy should cover the types of events your organization is most likely to face. It may not cover less likely scenarios. You should be aware of those scenarios and be prepared to detect them if they occur.
2. Meeting Security Requirements
Insurance providers may refuse to cover organizations that fail to meet their security requirements. These requirements are often taken from industry-wide cybersecurity frameworks like NIST and SANS. Meeting these requirements might involve changing workflows or implementing new technologies.
3. Managing Claims and Coverage Disputes
Cybersecurity incidents are complex and unpredictable. When one occurs, you may not know whether it is covered until after you conduct an investigation. Pay close attention to how your provider resolves coverage disputes when they occur.
Best Practices for Integrating Cyber Insurance Into Your MSP Business
Cyber insurers have a clear incentive to prioritize the most secure organizations. Taking ownership of your security risk profile now can help you obtain better terms from your cyber insurance provider. Here are some ways you can negotiate insurance terms from a position of strength.
Proactive Risk Management
Less than half of MSPs implement multi-factor authentication (MFA) and 48-hour encrypted backups on their systems. These two improvements can help your organization stand out from the crowd as a reliable manager of cyber risk.
Additionally, consider implementing automated patch management capabilities to secure endpoint devices against attack. Patch management ensures your devices are protected from the latest threats the moment new security features are made available.
Incident Response Planning
Expect insurers to ask questions about your incident response capabilities. They will want to know what happens after an attacker successfully infiltrates your network. Does your organization have dedicated incident response personnel and resources on hand?
Be prepared to walk insurers through your incident response workflows. The more robust your security capabilities are, the more likely you are to get favorable terms on your insurance policy. Identify some cyberattack scenarios and simulate them internally before talking to cyber insurance providers.
Aligning Cyber Insurance with Cybersecurity Measures
On average, MSPs are raising their security budgets by 5% per year. As you implement new technologies and workflows, your cyber insurance risk profile will change. Investments in things like password management can positively impact the terms and conditions of your insurance policy.
Ideally, all new cybersecurity investments should align with your insurance policy. Modernization efforts — like replacing legacy servers with cloud-based alternatives — can also impact your organization’s appeal to insurance underwriters.
Reducing Vulnerabilities and Preparing for Cyber Insurance with JumpCloud
JumpCloud provides mobile device management (MDM) and endpoint protection to MSPs using flexible multi-tenant architecture. Now you can secure multiple device fleets and automate device provisioning and deprovisioning for all your clients through a single interface.
Deploying JumpCloud can make a significant difference in your search for secure, cost-effective cyber risk insurance. Consider enabling MFA, encrypted backups, and automated patch management on all your clients’ devices before requesting a cyber insurance quote. With JumpCloud helping you meet strict security requirements, you can earn better terms from higher-quality insurers you trust.
