First Party vs. Third Party Cyber Coverages

In today’s digital landscape, cyber threats, first party vs. third party, are no longer a matter of “if” but “when.” From ransomware attacks to data breaches, businesses of all sizes are at risk. However, one of the biggest misconceptions about cyber insurance is understanding what it actually covers.

Many business owners assume their general liability or BOP insurance policies will cover cyber incidents—only to find out they don’t. Worse, they often don’t realize how both first-party and third-party cyber coverages work until after an incident occurs.

So, what do these terms mean? And why does your business need both?

Let’s break it down.

What is First-Party Cyber Coverage?

First-party cyber insurance protects your business when you experience a cyber attack, data breach, or ransomware event. This type of coverage helps pay for the direct financial losses and expenses incurred as a result of the incident.

What Does First-Party Cyber Coverage Include?

If your business falls victim to a cyber attack, first-party coverage typically covers:

Business Interruption Costs – Lost income due to downtime caused by a cyber event. For example, if a ransomware attack shuts down your online store for a week, this coverage helps recover lost revenue.

Cyber Extortion & Ransomware Payments – First-party coverage can cover the cost if a hacker demands a ransom to restore your data.

Breach Notification & Credit Monitoring – If your customer’s data is stolen, many states require businesses to notify affected individuals. This coverage pays for impacted parties’ notification costs, legal compliance, and credit monitoring.

Forensic Investigations & Crisis Management – If your systems are compromised, forensic experts are needed to determine how the breach happened. Public relations experts may also be required to manage reputational damage.

Data Restoration & System Repair – This covers the cost of restoring or recreating lost, damaged, or encrypted data and fixing compromised systems.

Real-World Example of First-Party Cyber Coverage in Action

A mid-sized law firm experiences a ransomware attack that locks them out of all case files. The attackers demand $250,000 in cryptocurrency for the decryption key.

The firm’s first-party cyber insurance covers:

• The ransom payment (after working with cybersecurity experts to assess options).
• The cost of forensic investigations to identify how hackers gained access.
• Business interruption losses due to case delays.
• Legal compliance costs related to client notification.

Without cyber insurance, the firm would have faced these costs out of pocket—potentially putting their entire practice at risk.

What is Third-Party Cyber Coverage?

While first-party coverage protects your business, third-party cyber liability insurance covers claims from outside parties—such as customers, vendors, or regulatory bodies—who suffer financial harm due to your business’s cyber event.

What Does Third-Party Cyber Coverage Include?

If your business is responsible for exposing sensitive data or disrupting a partner’s operations, third-party coverage typically includes:

• Lawsuits & Legal Defense – If a customer sues because their data was stolen from your systems, this coverage helps pay for legal fees, settlements, and damages.
• Regulatory Fines & Penalties – Government agencies may fine businesses for failing to protect sensitive customer data (e.g., HIPAA violations for healthcare companies).
• Liability for Vendor & Partner Downtime – If your cyber event disrupts a vendor’s operations, they may sue for damages.

Real-World Example of Third-Party Cyber Coverage in Action

A retail business suffers a point-of-sale system breach, exposing thousands of customer credit card numbers.

The company’s third-party cyber insurance covers:

• A class-action lawsuit filed by affected customers.
• Regulatory fines imposed for non-compliance with data protection laws.
• The cost of hiring attorneys to handle legal proceedings.

Without cyber insurance, the retailer would be on the hook for millions in settlements and fines.

Myth-Busting: Common Cyber Insurance Misconceptions

Many business owners don’t realize they need cyber insurance because of the following myths:

Myth #1: “I already have general liability insurance, so I’m covered.”

Truth: General liability policies do not cover cyber attacks or data breaches. Cyber insurance is a separate, specialized policy.

Myth #2: “My business is too small to be a target.”

Truth: Small and mid-sized businesses are prime targets because they often have weaker security. Hackers know this and exploit it.

Myth #3: “We have strong IT security, so we don’t need cyber insurance.”

Truth: Even the best cybersecurity cannot guarantee 100% protection. Cyber insurance helps cover the financial consequences when an attack happens.

FAQs About First-Party & Third-Party Cyber Insurance

1. How much does cyber insurance cost?

Cyber insurance pricing depends on factors like company size, industry, security measures, and claims history. Most businesses pay anywhere from $1,000 to $10,000 annually for coverage. To get an accurate quote, we only need some basic underwriting information to get started.

2. Do I need both first-party and third-party coverage?

Yes. The first party covers your losses, while the third party covers claims from others affected by your cyber event. Every cyber Insurance policy combines first and third-party coverages into a single policy.

3. What industries are most at risk?

Healthcare, finance, retail, law firms, and any business handling sensitive customer data or transactions.

4. How do I get the best cyber insurance policy for my business?

Work with an experienced broker, like The Coyle Group, who understands your industry’s risks and can tailor a policy to your needs. We work with the top Cyber Insurers across the US and can craft customized protection to fit your unique needs.

Final Thoughts: Protect Your Business with Cyber Insurance

A cyber attack can happen to any business, regardless of size or industry. Without the right coverage, you could face devastating financial and legal consequences.

Don’t wait until it’s too late—let’s have a no-pressure conversation about how cyber insurance can protect your business. Contact us today to learn more.