In Part 3 of our Emerging Trends: Cyber Insurance series, we explore emerging cyber threats. Part 1 focused on the trend of fewer organizations paying ransom demand, while Part 2 examined newer cyber events.

In today's digital age, third-party liability claims, especially those arising from privacy violations and data breaches, represent a significant financial burden for organizations. As cyber threats evolve and regulatory frameworks become more stringent, the financial implications of these claims have grown exponentially, affecting businesses of all sizes. Recent data from Newfront has found these claims to be among some of the most frequent and severe third-party claims, ranking in the top tier for highest cost per claim event. Given these findings, it’s crucial to understand the potential implications in detail.

Cost Implications of Third-Party Liability Claims

• Severe Costs: The average global cost of a data breach in 2024 was $4.88M. In addition to the costs associated with the event, these claims often involve substantial legal fees, regulatory fines, and compensation for affected individuals. Legal proceedings can be lengthy and complex, driving defense costs up significantly. Regulatory bodies impose hefty fines for non-compliance with data protection laws, adding to the financial burden.

• Ongoing Expenses: Many claims remain open for extended periods, with costs expected to rise as they progress through the legal system. The ongoing nature of these expenses can strain an organization’s financial resources, impacting its long-term financial health.

• Limited Insurance Coverage: The continued increase in third party privacy litigation is impacting viability of coverage. In an effort to mitigate costs, insurers have implemented limitations or exclusions related to wrongful collection of data, pixel tracking, and biometrics. In the past, insurers revised coverage terms and conditions every 3-4 years. Due to the volatility of the cyber claims landscape, insurers are revising policy language every 3-4 months to ensure sustainability. Contact Newfront to confirm that your coverage includes the broadest terms and limits currently available in the marketplace. 

To mitigate these risks, organizations must invest in robust data protection measures and comprehensive cyber insurance policies. Proactive strategies, including regular security audits and employee training, can help prevent breaches and reduce the likelihood of third-party liability claims.

By staying vigilant and prepared, businesses can better navigate the complexities of third-party liability claims and minimize their financial impact. Reach out to Newfront today to discuss how to ensure you stay ahead of evolving cyber risk.