October is Cybersecurity Month, and even though security may be top of mind for many organizations, it’s easy to miss some of its hidden costs. The digital landscape is teeming with cyber threats, many of which can impact your organization in ways that are not immediately obvious yet still serious.
The direct costs of a breach, such as fines and remediation expenses, are frequently discussed during IT team meetings. They’re also used to get buy-in for cybersecurity projects or justify buying individual pieces of equipment. However, in this blog, we’ll look at some of the often overlooked costs associated with a breach and why proactive cybersecurity measures are essential when it comes to mitigating them.
Immediate Financial Impact: Direct Costs
The worldwide average cost of a cybersecurity breach in 2024 is $4.88 million. Some of the most impactful direct costs of a cybersecurity breach typically include:
- Legal fees associated with liability issues stemming from the breach.
- Fines from government agencies in connection with security oversights.
- Regulatory penalties from compliance
- Expenses associated with notifying customers and the public about the breach.
It’s also common to have to invest extra money in customer support as you mitigate the impact of the breach. That is especially important when your company must compensate customers for money lost due to identity theft.
Operational Downtime and Business Disruption
A cybersecurity breach often leads to significant operational downtime. For example, the attack on the Colonial Pipeline resulted in six days of operational downtime from May 6 to 12, 2021. As was the case in this attack, when IT teams have to take your systems offline to remediate the effects of an attack, core operations typically have to be halted.
For example, suppose your customer relationship management (CRM) system is linked to your e-commerce solution, and your CRM gets hacked. You may have to shut down both your CRM and your e-commerce portal until the attack has been contained.
In addition to the overtime that employees may work to fix and recover from such a breach, it can also mean a less-than-seamless customer experience and result in lost sales. Finally, if other systems are affected, you may also experience delayed product launches or other project delays.
Damage to Reputation and Loss of Trust
A report by Security Magazine revealed that 66 percent of customers would no longer trust a company after a breach. When customers can’t use essential services, this can significantly impact your reputation. To repair your standing with your target market, you may have to design specific campaigns to reinforce the integrity and security of your organization.
Some companies offer discounts to attract customers back to their offerings. You may also decide to hire a public relations company, which can design and launch a campaign that helps improve your reputation. All of these, of course, come with a price tag.
Increased Insurance Premiums and Regulatory Scrutiny
After a successful attack, businesses often have to deal with increased insurance premiums. Insurance companies may also be reluctant to renew their coverage because they may see them as too risky to insure.
If you already have a cyber insurance rider on your policy, you can expect your premium payments to go up. Even the fear of cyber attacks can cause insurance companies to increase their rates. If you saw a rise in rates during the COVID-19 pandemic, this may have been the reason. According to a report by Reuters, insurers increased their cyber rates due to an increase in attacks during the pandemic.
And if you don’t have a cyber insurance policy yet, it may be more costly or difficult to obtain after a breach.
At the same time, you may get more attention from regulatory bodies in the wake of a successful attack. After examining your cybersecurity defense system, they may require additional compliance measures. Similarly, investors and other stakeholders may ask you to conform to standards such as PCI-DSS — even though they’re not required by law.
Additionally, to improve the general security in your business sector, regulatory bodies might conduct audits of your company to confirm that you’re doing all you can to prevent another incident. You may also be subject to additional reporting requirements for the same reason.
Providing extra information and strengthening your infrastructure requires additional effort and people hours, both of which come with a cost.
Legal Costs and Potential Lawsuits
Many companies also have to deal with the potential for lawsuits and the associated legal costs after a breach. Each organization is responsible for safeguarding customer data, as well as that of businesses they partner with and of other stakeholders. Once a breach has occurred, some of these parties may argue that you were negligent in your responsibility to protect their information. According to legal experts, this may be the case even if your home base is in one country, such as the U.S., and you’re in compliance with that country’s laws but deal with people covered by different cybersecurity legislation, such as Directive (EU) 2022/2555.
Further, when a government body investigates the breach and its causes, it may discover that you could have taken more precautions to prevent it. This information may only add fuel to the fire, motivating those looking for compensation to move forward with their claims.
In some instances, your cybersecurity policy may cover any liability damages. But considering the extent of damage that can result from a breach, it’s not uncommon for the financial repercussions to exceed your cyber coverage. In this case, you may be forced to cover expenses associated with a negative judgment out of your pocket.
In addition to these expenses, you may have to shoulder the costs of ongoing legal consultation and representation. In some cases, a series of meetings in a private setting can settle any litigation issues. This is typically a less expensive option. In other situations, the matter may end up in court, which results in significant court appearance fees for your attorneys.
Employee Morale and Productivity Impact
One of the most often overlooked effects of a cybersecurity issue is the impact on employee morale and productivity. Employees who are confident in your organization’s strength and competency may approach their work with vigor and be proud to help your company progress. Unfortunately, the opposite may be true once their confidence has been shaken.
A company that fails to defend one of its most valuable assets (customer and company data) may have to deal with employees who start looking elsewhere for employment. After all, your company’s name — including its reputation — are front and center on their resumes. Therefore, their brand identities are interwoven with yours.
At the same time, there may be concerns regarding how to communicate the breach and its details to your internal staff. After the dust has settled, you have to take some time to strategize the best way of letting people know what happened and how this may impact their jobs. It may also be necessary to provide additional training so employees can help prevent another breach.
For example, if the attack began with a phishing assault, most likely, one or more employees inadvertently helped the hackers succeed. It would make sense, therefore, to make sure all employees understand what these kinds of attacks look like and what to do if they suspect they’re being targeted.
It’s also common for employees to have concerns after a breach has occurred. For instance, suppose someone gained access to an on-premises data center and stole information from a database. Even though the attackers may have been after the data of your customers or business partners, employees may, understandably, wonder if their information is still safe.
They could be concerned about data held by your human resources department, including Social Security numbers, addresses, and other personally identifiable information.
Another concern employees might have is whether the attack was their fault. In the case of a phishing incident, yes, they may share some of the blame. The same goes for many brute-force attacks. Since these leverage commonly used passwords, your staff may have created vulnerabilities by using overly simple login credentials.
Regardless of the role your employees may have played in enabling the attack, it’s important to not let their guilt become disabling.
For instance, suppose an otherwise high-performing employee left their laptop open while taking a quick trip to the bathroom at a coffee shop. An attacker, knowing the company they work for, slipped a USB drive into their computer, which downloaded a virus. This can take less than 30 seconds. When the employee returns to the office and connects to your network, the virus spreads from their machine to the rest of your network. You discover the source of the attack during a post-mortem root cause analysis.
This was the attack method used by a hacker group called UNC4990 in late 2023. They used USB devices in the first phase of a more complicated attack.
After this kind of attack, you have to decide whether you will tell the employee about the role they played, as well as when and how. It’s also hard to gauge the impact of this conversation on the employee, who may be defensive, angry, or deeply embarrassed.
Regardless of the nature of the breach, there may be some who decide to leave. That would result in potentially expensive hiring and training to replace them.
Intellectual Property Loss and Competitive Disadvantage
Sometimes attackers are after your corporate secrets, such as your business strategy or intellectual property, which they can sell on the dark web or to your competition. In other cases, they may threaten to publicize your private information to extort a ransomware payment.
According to a report by the cybersecurity magazine The Register, intellectual property has risen to “unprecedented” levels, particularly due to attacks by Chinese government-sponsored hackers.
The loss of trade secrets and proprietary information or research and development data also comes with a considerable expense. For instance, you may have to adjust your marketing strategy or redesign products to maintain a competitive advantage.
If the details of a future product get leaked, this could impact revenue down the road, especially because it gives your competition the chance to develop a similar offering. As a result, your market share may diminish. That can result in long-term financial damage and a lower valuation of your company.
Future Cybersecurity Investments and Remediation Costs
Another cost that organizations frequently overlook is the expense associated with enhancing cybersecurity measures to prevent more breaches down the road. This may involve:
- Hiring cybersecurity experts to improve your infrastructure.
- Arranging for managed security services, which provide ongoing protection.
- Purchasing new technologies, such as advanced cybersecurity tools, to reduce your vulnerabilities.
- Conducting security audits and assessments performed by third parties.
The process of protecting yourself against future threats also comes with a cost. For example, you may have to upgrade legacy software or hardware to a newer version that is supported by a manufacturer that provides frequent updates. This may come with a monthly subscription cost. Many organizations also end up paying for ongoing threat detection and mitigation services as an extra safeguard after they’ve been attacked. You also may have to purchase new equipment, such as firewalls, to satisfy the concerns of stakeholders.
Often, companies have to hire a security advisor after a breach. This results in additional costs as you pay for security assessments and reports.
Prevent Unforeseen Breach Expenses by Taking a Proactive Stance
The hidden costs of a cybersecurity breach range from operational issues to reputational damage and preventative measures you must take to stop future attacks. There are also extensive legal and insurance-related expenses you may have to deal with.
To prevent unforeseen breach expenses, it’s best to arrange for security advisory services ahead of time and bolster your cybersecurity defenses. Get in touch with us today to assess your cybersecurity readiness and find services that are the right fit for your business.