Every business in New York today uses technology, which means every business faces the threat of a cyber attack. These attacks are not just aimed at big corporations; in fact, 43% of small and medium-sized businesses (SMBs) faced at least one cyber attack in a recent 12-month period [^1.3].1 Cyber Liability Insurance is no longer a luxury—it’s a necessary financial shield to survive the costly fallout of a data breach or network attack.
- Why are cyber attacks on small businesses happening more often?
- The Growing Threat Statistics
- What is the difference between First-Party and Third-Party Cyber Liability Coverage?
- Why do all businesses need Cyber Liability, even if they don't store credit cards?
- Frequently Asked Questions (FAQs) About Cyber Liability
- Conclusion
- Don't wait for a data breach to learn you were unprotected.
Why are cyber attacks on small businesses happening more often?
Cyber attacks on small businesses are happening more often because cybercriminals view them as easy targets with valuable data but less security than large corporations.3 Phishing scams, where employees are tricked into clicking a bad link, are a major problem, initiating 80-95% of all human-associated breaches .
The Growing Threat Statistics
The numbers show that cyber risk is one of the fastest-growing threats to business survival:
- The average cost of a data breach for a smaller company (under 500 employees) is approximately $3.31 million [^2.4].5 This staggering amount can easily put most small businesses out of operation.
- 60% of small businesses close within six months of experiencing a major cyber attack [^2.3].6
- Phishing scams account for nearly 30% of all global breaches [^1.1], making human error the top risk factor.
Cyber criminals are often looking for two things: customer data (credit card numbers, Social Security numbers) or an opportunity to hold your systems for ransom (ransomware) .
What is the difference between First-Party and Third-Party Cyber Liability Coverage?
Cyber Liability Insurance is broken into two main types of coverage, based on who suffers the financial loss: First-Party covers costs you pay directly to get your business running again, and Third-Party covers costs related to lawsuits from others who were hurt by your security failure [^3.2, 3.5].8 A comprehensive policy includes both.
1. First-Party Coverage: Protecting Your Business
First-Party coverage pays for the immediate costs your business incurs after a cyber event on your own network or systems [^3.2].9 These are the costs necessary to get back up and running.
| Cost Covered | Description |
| Forensic Investigation | Hiring experts to find out how the hackers got in, stop the attack, and prove the cause [^3.1]. |
| Data & System Restoration | Paying IT professionals to restore compromised data and systems, including ransomware payment (if covered by the policy) [^3.1, 4.2]. |
| Business Interruption | Replacing the income you lose while your business is shut down due to the cyber attack [^4.2, 4.3]. |
| Notification Costs | Paying for the legal requirement to notify customers or employees about the breach via mail or email, and offering credit monitoring [^3.1, 4.2]. |
| PR & Crisis Management | Hiring experts to manage your reputation and restore public trust after a breach [^4.5]. |
Hypothetical Example: A ransomware attack encrypts all the files on a New York architecture firm’s server. First-Party Coverage pays the ransom (if the policy allows), hires a forensic team to decrypt the data, and covers the lost revenue while the firm’s systems are down for three days.
2. Third-Party Coverage: Protecting Against Lawsuits10
Third-Party coverage protects your business from financial losses when clients, customers, or regulators sue you because a security failure on your part exposed their data or damaged their systems [^3.2, 3.4].
| Risk Covered | Description |
| Privacy Liability | Lawsuits from customers claiming their personal data (PII) was exposed because of your error or security failure [^3.3]. |
| Network Security Liability | Lawsuits claiming you transmitted a virus or malware to a client’s system [^3.4]. |
| Regulatory Fines & Penalties | Covering fines and legal costs resulting from government regulators (like HIPAA or PCI-DSS) investigating your data breach [^4.2]. |
| Legal Defense | Paying for your lawyers, court costs, and any settlement or judgment paid to the third party [^3.4]. |
Hypothetical Example: An e-commerce store in Manhattan suffers a breach that exposes the credit card information of thousands of customers. Third-Party Coverage pays for the legal team to defend the store against the class-action lawsuit filed by the affected customers and pays any resulting settlement.11
Why do all businesses need Cyber Liability, even if they don’t store credit cards?
Every business needs Cyber Liability because all businesses use email, store employee data, and rely on internet-connected devices; therefore, all businesses are vulnerable to an attack that could shut down their operations .
Even if you don’t store customer credit card information, you still store:
- Employee Records: Social Security numbers, addresses, and tax information.13
- Client Communication: Confidential emails and proprietary information.14
- Financial Records: Banking details, payment histories, and invoices.15
An attack that simply locks you out of your systems (like ransomware) or uses your email to send fraudulent wires can cause devastating first-party losses, regardless of the data you store [^4.4].
Hypothetical Example: A non-profit organization only stores donor names and addresses. A hacker takes over their bank account via a successful phishing attack on the bookkeeper’s email. The Cyber Liability policy would cover the funds lost due to the fraudulent wire transfer (often covered under a social engineering or funds transfer fraud endorsement) and the forensic costs to secure the email system.
Frequently Asked Questions (FAQs) About Cyber Liability
Does my standard Business Owner’s Policy (BOP) include Cyber Coverage?
Generally, no. Standard Business Owner’s Policies (BOPs) and Commercial General Liability (CGL) policies are designed for physical damage (like fire or theft) and bodily injury (like slip-and-falls). They typically exclude losses related to electronic data and cyber attacks, requiring a separate, specialized Cyber Liability policy.
What is ransomware, and does Cyber Insurance pay the ransom?
Ransomware is a type of malicious software that locks or encrypts your computer files and demands a payment (ransom) to unlock them . Most modern Cyber Liability policies do include coverage for paying the ransom, as well as the fees for the experts who handle the ransom negotiation and transfer.
What is the most common way a cyber attack starts?
The most common way a cyber attack starts is through human error, particularly phishing . Phishing is when an employee is tricked by a fake email into giving up their password or clicking a link that installs malware. Statistics show that the human element is involved in 68% of breaches.
If I use a cloud service (like Google Drive) to store my data, am I still responsible if they are hacked?
Yes, you can still be held liable. While your cloud provider (like Google or Amazon) may be responsible for the security of their own platform, you are usually still responsible for the security of your data within their system. If a hacker gets into your account because one of your employees used a weak password, or if you fail to configure security settings correctly, you can still face third-party lawsuits from your affected clients .
Conclusion
In a connected world, every email, every stored customer address, and every online transaction is a potential point of entry for a cyber criminal. For a business in New York, a single cyber attack can lead to millions in financial costs, reputation damage, and legal fees. Cyber Liability Insurance is the essential tool that covers these non-physical, electronic threats, ensuring your business has the resources to investigate, recover, and defend itself.22
Don’t wait for a data breach to learn you were unprotected.
Cyber insurance is complicated, and the right policy needs to match your business’s unique digital risks—from handling client data to managing your employees’ access. Contact the specialists at MKR Specialty Insurance today. We will help you understand the difference between first-party and third-party risk and build a robust Cyber Liability plan tailored to the needs of your New York business. Visit our website or call us today to schedule your essential cyber risk consultation.
