How Much Does Cyber Insurance Cost for Small and Mid-Sized Firms?

Cyberattacks can cause substantial financial damage that many businesses are not prepared for. IBM’s 2023 Cost of a Data Breach Report found that the average total cost of a data incident in the U.S. was $9.48 million. This staggering number illustrates the significant cost of a cyber incident.

Many small and mid-sized companies still do not carry sufficient insurance or any insurance at all, which leaves them vulnerable to substantial losses. Without coverage, your business could face repair, legal, and recovery costs that can cripple operations.

“If you’re not factoring cyber insurance into your risk plan, you’re leaving your business exposed to costs you can’t predict or control,” said Adam Radulovic, CEO of Xl.net. This statement emphasizes the importance of incorporating cyber insurance into your business risk management strategy.

In this blog, you will learn how much cyber insurance costs, what factors affect these costs, and steps you can take to keep premiums affordable while staying protected. If you handle any client data or internal records, this information is critical for your business security.

Why Businesses Should Pay Attention to Cyber Insurance Cost

Just 17% of small businesses have cyber insurance, far behind the 84% of larger companies. You might think cyber insurance is just an extra expense. In reality, it protects your business from several costly consequences that can arise from cyber incidents.

Digital threats are increasing in volume and sophistication, affecting companies in all industries. If you do not pay attention to the cyber insurance cost, you could pay far more later through recovery and legal fees.

• Digital threats are rising: Cybercriminals target SMBs because they often have weaker defenses. Phishing emails, ransomware, and malware attacks can disrupt operations or compromise sensitive data.
• Recovery costs keep climbing. After an incident, businesses must pay for forensic analysis, data restoration, customer notification, and legal fees. These costs quickly add up and can exceed millions for some companies.
• Your reputation suffers. When customer or client data is compromised, trust erodes fast. Losing customers due to a cyber incident can have a lasting impact on your revenue and brand image.
• Cyber insurance covers these expenses. It provides financial support for first-party costs, such as data recovery and business interruption. It also covers third-party costs such as lawsuits or regulatory fines.

Thinking of cyber insurance as just a cost misses its real value. It helps you reduce financial exposure, keep your business running during a crisis, and maintain client confidence.

What Influences How Much Cyber Insurance Costs

Your insurance premium depends on how risky insurers think your business is. They look closely at several factors to determine your cyber insurance cost. These factors reflect how vulnerable you are to an incident and how costly a claim might be.

• Size of your company: Larger companies usually pay more because they have more devices, users, and data points that hackers can attack. More endpoints increase your risk, so insurers expect a higher premium.
• Your industry: Industries like healthcare, finance, and IT face greater risks because they handle sensitive information regularly. Insurers charge higher premiums in these sectors due to increased exposure and regulation.
• Amount of sensitive data you handle: If you store or access personal, financial, or health data, your premiums will be higher. Sensitive data incurs higher regulatory fines and more expensive recovery efforts in the event of an incident.
• Your claims history: A history of claims signals higher risk to insurers. If you’ve had cyber insurance claims before, you should expect higher premiums because the insurer sees you as more likely to file again.
• Your cybersecurity setup: Businesses with strong security systems and response plans get lower premiums. Insurers reward companies that invest in firewalls, multi-factor authentication, encryption, and regular audits. Weak security measures lead to higher costs.

How Much Does Cybersecurity Insurance Cost for Different Business Types?

Your business type and the data you manage significantly influence your cyber insurance costs. Different industries and company sizes have varying risks that insurers account for.

• Small firms with minimal data handling: If your business handles limited customer or operational data, your yearly premium could fall under $1,500.
• Managed service providers and IT consultants: These firms typically handle sensitive data and access client systems. Premiums here can range from $2,500 to $6,000 or more, depending on scale.
• Healthcare and financial firms: If you store health records or financial credentials, your risk is high. Expect premiums to start around $4,000 and go upwards based on regulatory requirements.
• Retailers and eCommerce businesses: Businesses that process online transactions may face threats like card skimming or platform hacks. Costs often range from $1,800 to $4,000.

How Much Does Cyber Liability Insurance Cost with First vs. Third-Party Coverage

When choosing coverage, it’s essential to know the difference between first-party and third-party cyber insurance and how that affects your premiums.

• First-party coverage: Covers your internal recovery costs like data restoration, system repair, and business downtime.
• Third-party coverage: Applies when your clients sue you over their data loss. It helps cover legal defense, settlements, and regulatory fines.

For example, if you are an IT consultant and a cyber incident on your system causes client data loss, third-party coverage helps cover legal costs and damages you owe.

Because third-party claims can be very expensive, policies that include this coverage typically have higher premiums. However, this protection is essential if you handle client data or work in regulated industries. Bundling cyber liability with errors and omissions insurance (Tech E&O) can help you get comprehensive coverage and may reduce overall premiums.

Typical Cyber Insurance Premiums by Coverage Limit

Your choice of coverage limit significantly affects your cyber insurance cost. Higher coverage limits mean more protection but come with higher premiums.

• A $1 million policy usually costs between $1,000 and $3,000 per year. This level offers basic protection suitable for small businesses with moderate risk.
• A $2.5 million policy generally ranges from $3,500 to $6,500 annually. This is common for mid-sized firms that want more robust coverage.
• A $5 million policy starts around $6,500 and can exceed $10,000 per year. This limit is suitable for businesses with significant exposure and high-value data.

Premiums can also be broken down monthly, costing an average of $145. In addition to the limit, your deductible affects your premium. A higher deductible means lower premiums, but you will pay more out-of-pocket when a claim occurs. Standard deductibles of around $2,500 are typical, striking a balance between cost and coverage.

Average Premiums for Small and Mid-Sized Businesses

Data from insurance providers shows that small and mid-sized businesses (SMBs) pay a wide range of premiums based on their risk profile.

• Most SMBs pay between $1,500 and $3,000 annually if they handle limited sensitive data and are in low-risk sectors.
• Businesses in regulated industries or those with higher data volumes typically pay between $3,500 and $7,500 per year.

According to TechInsurance, 38% of small businesses pay less than $100 per month for cyber insurance. These lower premiums usually mean smaller coverage limits or higher deductibles.

Choosing the cheapest policy can leave you exposed. If an incident occurs, you might have to cover costs that exceed your policy limits or face denied claims due to exclusions. Balance your premium cost with the coverage you need to avoid greater losses later.

How to Lower Your Cyber Insurance Premium

You can reduce your cyber insurance costs by improving your security posture and demonstrating to insurers that you effectively manage your risk.

Here are practical steps you can take:

• Enhance your cybersecurity maturity by installing antivirus software, encryption tools, and network firewalls. Insurers reward proactive protection.
• Run regular security audits and bring in third-party experts to identify and remediate vulnerabilities.
• Limit employee access to sensitive data: Fewer access points reduce the chances of internal error or insider threats.
• Train staff on social engineering risks: Many breaches start with phishing or human error. Annual training reduces this risk.
• Bundle with Tech E&O: If you’re in IT or an MSP, combining coverage can be more affordable and complete.
• Pay your premium annually: Insurers often offer a discount for upfront payment vs. monthly installments.

These actions demonstrate to insurers that your business is prepared, which in turn can lower your cyber insurance costs.

How Cyber Insurance Cost Compares to Breach Response Costs

Many businesses avoid insurance because they think the premiums are too high. However, the cost of responding to a cyber incident without coverage is far greater.

Consider typical uninsured vs. insured costs:

• A ransomware demand might cost $75,000. Without insurance, you pay this in full, plus the cost of forensic investigations and recovery. Insurance can cover most of these expenses after your deductible.
• Recovering data and legal fees may total $125,000. This is paid entirely out-of-pocket if you are uninsured. A policy can help absorb these costs.
• Notifying customers, public relations, and credit monitoring can add $60,000 or more. Insurance helps cover this, reducing your direct losses.

Compared to this, an annual premium of $3,000 to $5,000 is a reasonable investment in financial protection and peace of mind.

Is Cyber Insurance Worth the Cost for Your Business?

When deciding if cyber insurance is worth it, weigh the cost of your premium against the potential impact of an incident on your business. Recovering from a cyberattack often costs far more than any insurance premium.

Cyber insurance provides:

• Protection from significant financial losses that can threaten your survival
• Compliance with industry regulations and client contract requirements
• Added credibility and confidence for your clients and partners

Buying insurance is about more than avoiding loss; it’s about maintaining business continuity and trust. Investing in coverage can save you from devastating consequences.

What Insurers Evaluate in Your Application

Insurers review key areas when evaluating your application for cyber insurance. Understanding these will help you prepare and possibly reduce your premiums.

Providing complete and accurate information helps expedite the approval process and prevents potential claim issues later.

Protect Your Business with Confidence by Partnering with XL.net Today

Cyber incidents affect businesses of all sizes. SMBs often have weaker defenses and are more vulnerable to costly attacks. With threats growing, cyber insurance is an essential layer of protection that no business can afford to skip.

At XL.net, we help reduce IT issues by 79.8% while providing round-the-clock support, answering 99.3% of calls live 24/7/365.

Our team guides you to the right insurance coverage and cybersecurity practices tailored to your business.

Contact XL.net today to learn more about cyber insurance and how we can help you protect your business from financial risks.