Business interruption is a period when a business cannot operate because of a storm, flood, or any other unfortunate event. The various types of business interruptions can ruin a company as it causes income loss while the business is still liable to pay for rents, salary and other outgoing costs.
One of the increasing types of interruption is cyber-attack interruptions. A cyber-attack can reject a business’s access to its online systems, which can cause significant disruption, financial loss and reputational consequences.
A cyber-attack will be covered by cyber insurance; however, most cyber insurance will not cover the serious interruption caused. This case study will explain how business interruption insurance covered a cyber-attack interruption and saved a business from a large amount of financial loss.
Our client is an E-commerce business that sells sports goods online in Asia. They do not own a physical shop but work out of an office and warehouse. Their business activity includes marketing their products through social media, collecting orders and payments online(website), and transferring products from warehouse to customer.
Their website and all online platforms are a crucial part of their business. The business hopes to open a physical shop after creating a larger brand image and customer base. However, when working online, there are many risks that business owners need to be aware of and find the best protection.
These protections include having strong cyber security and cyber insurance. Unfortunately, cybercriminals sometimes still find their way through cyber security and infect online businesses. Thankfully, cyber insurance covers a business’s liability against a cyber attack involving sensitive customer information and helps recover from the attack.
Although cyber insurance will not cover cyber attack interruption, the cost can add up to a hefty amount.
Client problem – Cyber Attack Interruption
Unfortunately, the client was a victim of a severe cyber malware attack that corrupted their entire online system and data. As a result, the company had to contact their cyber insurance company immediately.
The cyber attack experts informed them that they would have to shut down their business for at least two months- to recover and avoid the malware spreading fully. This means they will not be able to collect new orders and payments to protect their customers. However, in the two months, the cyber experts extracted the malware and recovered all the infected data while informing the affected third party.
Therefore during the two months of cyber attack interruption, the sports E-business did not receive any new income. In addition, they had to pay its ten employees, office & warehouse rent and additional expenditures.
How Business Interruption Insurance Was The Solution For A Cyber Attack Interruption?
Fortunately, the business had purchased business interruption insurance.
Business interruption insurance is a policy that covers lost income when your business temporarily closes due to a surprising covered incident. In their case, the incidents included cyber attack interruptions and will cover income loss plus expenditure for the interruption period.
Many businesses can shut down due to the interruption; with business interruption insurance, the business can move on and focus on a better future. Therefore, the company could allow cyber experts to remove the malware without worrying about financial loss. Although it is vital to inform loyal customers and the public.
The business interruption insurance reimbursed the following costs:
- Income (calculated by previous months): HKD 1,200,000
- Office & warehouse rent: HKD 150,000
- Employees Salary: HKD 500,000 ( 10 employees)
- Addition costs:HKD 50,000
Total Costs reimbursed: HKD 1, 900,000
Cyber attack interruptions are getting more common in this technology generation, and every company should have a protection plan against them.
Business interruption insurance should be bought by any company that would lack funds if the business temporary shuts down. It is an insurance extension typically purchased with property all risk, as it most commonly covers physical interruptions like fires, floods and natural disasters.
Although it is crucial to understand the insurance will not cover partial interruption of just a few days or hours (depends on the insurance company). Therefore it is better to purchase the insurance now than regret it when faced with a severe cyber attack interruption.