In today’s digital-first world, cyber threats are escalating at an alarming pace. India, with its rapidly expanding internet penetration and digital economy, has become a hotspot for cyberattacks. From small businesses to multinational corporations, no one is immune to cyber risks. In fact, according to the Indian Computer Emergency Response Team (CERT-In), over 13.91 lakh cybersecurity incidents were reported in 2022. CERT-In noted that this increase was also influenced by changes in reporting formats and heightened awareness. The financial and reputational damage caused by such breaches can be devastating. This is where Cyber Liability Insurance comes into play.
Cyber Insurance is no longer a luxury; it’s a necessity. However, not all Cyber Liability Insurance policies are created equal. Broadly, Cyber Liability Insurance is divided into first-party and third-party cyber coverage, each addressing different aspects of cyber risks. If you are unsure about which one suits your needs, keep reading! This guide will help you navigate the complexities of Cyber Liability Insurance in India with in-depth insights.
What is Cyber Liability Insurance?
Cyber Liability Insurance is a risk transfer mechanism that provides financial protection against cyber threats, including data breaches, ransomware attacks, network security failures, and certain types of social engineering fraud, depending on the policy wording. It covers the costs associated with cyber incidents, helping businesses and individuals recover swiftly.
Who Needs Cyber Liability Insurance?
- Businesses: From IT firms and e-commerce platforms to financial institutions and healthcare providers, any entity handling customer data is at risk.
- Startups & SMEs: Many assume cyber threats only affect large corporations. However, a large number of cyberattacks target small and medium-sized enterprises (SMEs) due to their weaker security frameworks.
- Freelancers & Professionals: Individuals working with sensitive client data (such as consultants, lawyers or accountants) also need protection.
- Government & Public Sector Entities: Increasing attacks on critical infrastructure make Cyber Insurance crucial for national security.
Common Cyber Threats in India
India ranks among the top five countries facing cyber threats, according to cybersecurity reports. Common cyber risks include:
- Ransomware Attacks: Organisations in India reported a 53% increase in ransomware incidents in 2022.
- Phishing Scams: Financial fraud through phishing emails and fake payment links has surged in recent years.
- Insider Threats: Disgruntled employees or human errors leading to data breaches.
- Denial-of-Service (DDoS) Attacks: Businesses experiencing website shutdowns due to malicious cyber activities.
Understanding First-Party Cyber Coverage in Cyber Insurance
First-party cyber coverage includes direct losses suffered by the insured organisation or individual as a result of a cyberattack.
What Does First-Party Cyber Coverage Include?
- Data Breach Response Costs: Covers expenses for forensic investigation, notification to affected individuals and crisis management.
- Cyber Extortion & Ransomware: Reimburses the costs of dealing with cybercriminals demanding ransom payments.
- System Restoration & Downtime Losses: Pays for data recovery, IT repairs and loss of revenue due to business interruption.
- Public Relations & Reputation Management: Protects your business from the expenses to mitigate damage to the company’s reputation after an attack.
- Fraudulent Transfers & Phishing Scams: Protects your business against financial losses from deceptive cyber transactions.
- Theft of Digital Assets: Covers expenses related to the compromise of digital assets, such as the costs of investigating and mitigating breaches involving proprietary data or trade secrets, though the intrinsic value of lost intellectual property is typically not covered.
In 2021, Air India suffered a massive data breach, exposing the sensitive information of 4.5 million passengers. The airline had to bear significant costs for customer notification, forensic investigations and reputation management. A robust first-party Cyber Liability Insurance Policy can cushion the financial impact in such instances.
Understanding Third-Party Cyber Coverage in Cyber Insurance
Third-party Cyber Liability Insurance protects your business from legal and financial liabilities arising from cyber incidents affecting customers, vendors or other stakeholders.
What Does Third-Party Cyber Coverage Include?
- Legal Expenses & Settlements: Covers legal defence costs and settlements arising from data breach.
- Regulatory Fines & Penalties: Helps businesses comply with data protection laws and manage penalties imposed by regulatory authorities.
- Customer Lawsuits & Compensation Claims: Protects your business against claims from affected clients or partners due to leaked personal or financial data.
- Network Security Failures: Covers damages arising from malware, unauthorised access or hacking incidents impacting third parties.
- Third-Party Media Liability: Covers claims related to copyright infringement, defamation or publication of false information online.
In 2021, reports surfaced alleging that Mobikwik had suffered a data breach affecting nearly 10 crore users, including sensitive KYC details. While the company denied these claims, the incident raised serious concerns and triggered scrutiny from regulatory authorities like the RBI and CERT-In. A robust third-party Cyber Liability Insurance Policy could have covered legal defence costs, regulatory fines, customer compensation claims and forensic investigation expenses. This would have significantly mitigated the financial and reputational damage, allowing the company to focus on strengthening its cybersecurity measures instead of dealing with massive out-of-pocket expenses.
Key Differences: First-Party vs. Third-Party Coverage
Understanding the distinction between First-Party vs. Third-Party coverage is crucial. Here’s a quick comparison:
| Aspect | First-Party Cyber Insurance | Third-Party Cyber Insurance |
| Covers whom? | The policyholder (company or individual) | Affected third parties (customers, partners, vendors) |
| Main Expenses Covered | Business interruption, ransomware, data recovery, PR crisis management | Legal costs, customer lawsuits, regulatory fines, network security liabilities |
| Typical Beneficiaries | Companies, SMEs, startups, professionals | Organisations handling third-party data (banks, IT firms, healthcare providers) |
| Example Incident | Ransomware attack on a business, causing financial losses | Customer data breach resulting in lawsuits and regulatory action |
Cyber Insurance Regulations & Compliance in India
With rising cyber threats, Indian regulatory bodies have been tightening data protection norms. Companies must comply with:
- The Digital Personal Data Protection (DPDP) Act, 2023 – Governs data privacy and protection, imposing heavy penalties for data breaches.
- IRDAI Guidance on Cyber Insurance – While formal guidelines are still under development, the IRDAI has encouraged insurers to create robust Cyber Insurance products tailored to Indian market needs.
- RBI Guidelines for Financial Institutions – Mandates data security measures for banks and NBFCs.
- CERT-In Compliance Rules – Requires mandatory reporting of specific cybersecurity incidents within six hours of detection, as per the CERT-In Directive dated April 28, 2022, under Section 70B of the IT Act.
Non-compliance can result in penalties up to ₹250 crore under the DPDP Act, making Cyber Liability Insurance an essential risk-mitigation tool.
Final Recommendations
Cyber resilience isn’t just about having Cyber Liability Insurance; it’s about implementing robust cybersecurity measures, training employees and staying compliant with regulations. As India’s digital economy continues to grow, investing in Cyber Liability Insurance today is a smart move for a secure tomorrow.
- If you want protection against direct cyber losses (like ransomware or data theft), first-party cyber coverage is essential.
- If you handle sensitive customer data and want to mitigate legal risks originating from a data breach, third-party Cyber Insurance is crucial.
The best approach? A combination of both first-party and third-party cyber coverage is needed to ensure holistic protection from losses related to cyber risks.
Stay protected, stay insured and stay ahead of cyber threats!
