Founders are discussing cyber insurance more than ever, with 83% talking to their investors and boards about cyber protection often or always — a 42% increase year-over-year, says a new report.
The report, titled “2023 Cyber Risk Index,” comes from Embroker. Each year, Embroker examines the cyber security risks startup founders face and how they mitigate them. In general there is an optimism that cyber hackers will leave new start-ups alone. Even as the volume of cyber attacks experienced by founders increases, nearly half of founders believe they are unlikely to encounter one themselves going forward. This likely originates from inexperience: 72% of founders series C or further reported feeling it’s somewhat/extremely likely they will experience a cyber attack in the future, compared to just 40% of seed/pre-seed and 56% of series A/B founders who say the same.
Cyber attacks are constantly evolving, and founders recognize the need to stay attune to the threat. For example, 9 out of 10 believe malicious AI is a threat to their business going forward. However, with coverage in place, founders believe that in the event malicious AI comes for them, they are covered for it.
Founders’ concern for their businesses is surprisingly low, perhaps due to the trust they have in their coverage. Confidence in risk coverage increased 25% year-over-year, with 55% of founders believing that their policies would cover them in the event of a breach. However, concern is rising in other places. Some founders fear the impacts that malicious AI and disruptive technologies could have on their businesses.
“Malicious AI is already prevalent and readily accessible, despite the fact that it’s relatively new. As a result, insurance and other risk mitigation techniques must evolve to catch up,” said Embroker’s Chief Insurance Officer David Derigiotis. “Cyber attacks are vicious, no matter the size of the company. To combat these threats, we are witnessing founders progressively searching for reliable protections, including and beyond insurance policies.”
BENEFITS OF CYBER INSURANCE
In the past year, founders have significantly increased their cyber protection; 39% of founders say this is a non-negotiable investment area for them, up from just 21% in 2022. Driving motivators like tension in foreign relations, inflation and hybrid workforces have fallen from the top of founders’ lists, suggesting that SEC regulations and customer trust are what companies are focused on. They’re confident in the
protections they are putting in place, but as troublesome technologies continue to surface, companies will need to adjust accordingly.
VC-backed founders recognize cyber protection as a necessity, not an option. Cyber coverage is nearly ubiquitous among startups, and founders’ motivations for purchasing it are evolving. Founders report accessing new benefits such as more easily securing funding, avoiding legal attrition and gaining customer trusts. Nearly half, 43%, said it eased their ability to secure funding, up from 36% in 2022.
Many aspiring startups are purchasing coverage to prepare for the new SEC cyber disclosure regulations passed in July 2023 requiring accountability for the cyber protections of US and foreign-based publicly traded companies.
The full report is available on Embroker’s website for download here.
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