What is The Cost of a Data Breach

  • By David Lukic
  • Oct 29, 2021

 Wondering how much would be the cost of a data breach on your company is entirely normal, given how often data leaks are happening these days. It is an excellent idea if you want to know the extent of damage you might face if such a situation occurs and adequately prepare yourself for it.

How Often Do Data Breaches Occur?

With the rate at which data breaches are happening and the ingenuity of the hackers, the question for most companies is not “if” a data breach will happen to them, but “when.” Statistics show that the number of breaches from January 2021 to September exceeded the total number of violations in 2020.

According to Purplesec, 29.6% of companies in the US will experience a data breach between 2020 and 2021, and 43% of these data breaches will involve small businesses. In every data breach, the average number of records leaked is 25,575, and each record leak costs an average of $150.

The key factors behind the rising number of breaches are:

A larger amount of information to steal: These days, companies rely more on data for their operations than in previous years. They store this data in the cloud, and any hacker capable of gaining access to it could easily use it or sell it to make a quick buck.

Increased adoption of digital solutions: When the pandemic came, most companies went virtual due to the restrictions that countries placed. There was a corresponding digital shift by consumers. Thus increasing the amount of data available online for hackers to assess.

Human error: Unfortunately, the digital shift did not educate users about the best online practices to follow. So there were more people using digital solutions, but they weren’t all aware of the risks involved. This created an ideal environment for phishing scams and credential theft which could easily lead to data breaches.
 
security breach cost

How Much Does a Data Breach Cost?

A single data breach in a company will cost an average of about $3.86 million. You can break down this cost into some possible post-data-breach expenses.

Cost of fixing the breach

After detecting a data breach, the first action a company takes is to secure its systems against future violations. This is an expensive process that might involve one or more of the following

  • An entire overhaul of servers or vital equipment, 
  • Hiring of a special anti-data-breach team (if your company does not have one), 
  • Adoption of a more sophisticated security system, 
  • Extensive migration of company data to the cloud,
  • Carrying out of numerous penetration tests to ensure the system is secure.
  • Setting up an Incident Report system to alert the company of a future breach.

Reputation damage

This is the most long-lasting consequence of a breach. These days, consumers know how important their data is, and they would leave a brand or company if they feel that their information is not secure there.
A data breach’s effect on companies would affect their ability to gain new customers, hire new personnel, and subsequently, it will hinder their profit-making ability.

Cost of paying hackers

In some data breaches, the hackers steal and re-encrypt the data of customers. Then, they demand a certain amount of money from the company to keep the data secret. This form of cybercrime is known as ransomware, and it has risen in popularity in recent years. 
There has also been a whopping 300% increase in the amount of ransom companies are told to pay. Since this year, a number of companies caught in this situation have been forced to pay between $4.4 to $50 million to secure their data.
This form of cybercrime is by far the most expensive data breach a company can experience.

Legal action

Customers of an organization that has been breached can take legal action against them and seek compensation for their leaked data. According to data regulation laws, organizations are legally required to ensure the security of their user’s data. Therefore the user can sue if any event puts that information in danger, whether it was the company’s fault or not.

There has been a rise in class-action lawsuits against companies by people affected by data leaks, and the money that goes into compensating them can reach millions of dollars. This is primarily because of the large number of people usually affected by a data breach.

Operational downtime

When a data breach occurs, organizations might have to totally or partially shut down operations for some time to investigate and fix the violation. According to IBM, it takes an average of 280 days for a company to identify and contain a data breach thoroughly. 
This is a long time within which there will be a large-scale loss of revenue due to the disruption in its services as customers cannot be expected to keep waiting for their operations to come up.
 
data breach cost

Can Insurance Safeguard Business From the Security Breach Cost?

Yes, you can. There are essentially two types of insurance that can adequately cover a company from any loss incurred by a breach.

First-party cyber liability insurance: This covers the losses your network might have.

Third-party cyber liability insurance: This covers the lawsuits your company might face because of the breach

Tech companies would be better off getting a “Technology Errors and Omission” policy instead, as these cover more tech-specific protection.

 
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