The Real Cost of Cyber Attacks

When it comes to estimating the financial impact a cyber attack could cost their organization, most business leaders are way off base.

The cost of a data breach are alarming - and rising. The Poneman Institute, estimates that on average a data breach in 2010 cost organizations an average of $7.2 million, or $214 per customer record - a $10 per-record jump from 2009. Meanwhile, incidences in which companies experienced breaches for the first time resulted in average costs of a whopping $326 per record in 2010 - up from $228 the prior year.

The breakdown of these costs is also often surprising. While the bulk was attributed to lost business, the Poneman report found that 16 percent is attributed to legal defense and compliance costs. To wit, a report from cyber risk consultant NetDefense found that the average legal defense related to a data breach was $500,000, while the average settlement topped $1 million.

Tim Stapleton, Assistant Vice President, Professional Liability Product Manager, Zurich North America, said that while companies are increasingly aware of these risks and are getting better at taking the necessary precautions, there are many incidences in which it is critical to connect immediately with experts in the emerging field of Internet security.

"There are many times when organizations face a data breach but don't want to communicate with legal counsel or insist on conducting their own investigation to save money," Stapleton said. "I can't stress how concerning that is. If the situation becomes more significant and ends up going to court later on, saying you conducted your own one-sided investigation will cost you a lot of credibility."

Poorly managed breaches can also cost a lot in public image - as Citigroup experienced last year after more than 360,000 customer files were compromised. When the bank took weeks to notify customers, then underestimated the number of affected customers, Citi received a public letter from the Connecticut Attorney General demanding more information on the incident - an incident which experts say took a toll on the bank's public image.

The best defense is to consult experts to devise a plan on what to do in the event of such a case - and immediately connect with a team of experts to protect against such damages.