In today's business landscape, rapidly advancing and widespread instances of cyber crime have made safeguarding your assets, customer data and reputation more important than ever.

As cyberattacks become more sophisticated and widespread, businesses become more vulnerable— and the cost of cybersecurity measures has risen drastically in response.

This leaves businesses without proper safeguards, including cybersecurity insurance coverage, exposed to potentially devastating impacts in the event of a cyberattack.

Let’s delve into the top four consequences stemming from poor business security measures — and key solutions for how to avoid them.

Financial Losses

Financial losses resulting from cyberattacks can be substantial, both in terms of direct and indirect costs.

·        Direct costs include expenses related to responding to an attack, such as ransom payments to hackers, forensic investigations to determine the scope of the attack and damage done and recovery expenses to restore the system and data.

·        Indirect costs include lost revenue due to downtime, decreased productivity and damage to the company's reputation.

The 2020 ransomware attack on Carnival Corporation is a prime example of the fiscal impact a cyberattack can have on a business. Not only did the company lose access to its data and IT systems, disrupting its operation and revenue, but the attackers also demanded a ransom payment in exchange for the return of the data. As a result, the attack's total cost was estimated at $2.2 billion in lost revenue.

Reputational Damage

Cyber attacks can have severe consequences on a business’s reputation, as customers understandably lose trust in its ability to protect their confidential information. The negative publicity generated can result in lost revenue and difficulty in recovering from the attack.

In 2017, Equifax experienced one of the largest data breaches in history, costing them at least $575 million, and potentially up to $700 million, as part of a global settlement with the Federal Trade Commission, the Consumer Financial Protection Bureau (CFPB) and 50 U.S. states and territories.

Operational Disruption

Cyberattacks have the potential to cause significant operational disruptions, resulting in lost productivity and downtime that can impair a company’s ability to meet customer demands and deliver products and services. In some cases, these disruptions can even permanently damage IT systems, leading to long-term setbacks and lost competitive advantage.

For instance, the 2017 ransomware attack on the global shipping company Maersk led to more than $300 million in operational disruptions and revenue losses, causing chaos at ports worldwide and emphasizing the far-reaching reverberations of cyberattacks — beyond just the financial losses.

Legal and Regulatory Consequences

The legal and regulatory consequences of cyberattacks are among the most severe impacts businesses can face. Depending on the nature and severity of the attack, companies may come up against fines, lawsuits and other legal penalties.

The 2013 Target data breach is a notable example, where customers whose credit card information was exposed filed numerous lawsuits against the company. Target faced regulatory fines and other legal penalties, including a $67 million settlement with Visa. Such legal consequences can have a lasting impact on any company's reputation, financial health and customer trust.

 

To avoid financial losses, reputational damage, operational disruption and legal consequences, businesses need to prioritize cybersecurity and take proactive measures to protect their data. Lovitt and Touché, a Marsh McLennan Agency, experts can provide guidance and advice to help fortify cyberattack preparedness. Learn more about our Business Insurance solutions.