Cyber attacks and data breaches are the biggest business risks facing small and medium-sized enterprises, but many underestimate the threats and misunderstand what cyber insurance covers, according to research by CFC.

Nearly half of the SMEs surveyed ranked cyber as their biggest business risk, while nearly three in five had experienced a cyber incident in the previous three years.

Despite this, only 30% identified phishing and social engineering as major threats, while the same proportion cited ransomware. Just 28% recognised human error as a significant risk. CFC’s claims data shows ransomware accounts for 64% of cyber claims costs, while human error contributes to 75% of claims.

The research also found that 74% of SMEs did not know cyber insurance covered incidents involving human error. Some 68% were unaware that policies could include proactive cyber security protection, while 61% did not realise incident response support was included. A further 68% did not know policies could provide legal and regulatory support.

The report also highlighted concerns around artificial intelligence, with 68% of SMEs expecting it to increase their cyber risk over the next two to three years.

Businesses with cyber insurance reported greater confidence in managing cyber risk than those without cover. Some 94% of insured SMEs said they were confident in their ability to manage cyber risks, compared with 61% of uninsured businesses.

Nine in 10 insured SMEs also reported having business continuity plans, while they were 23 times more likely to have a formal cyber strategy.

Lindsey Maher, head of global cyber development at CFC, said: "While awareness of cyber risk has grown significantly, many businesses still underestimate the threats most likely to affect them and remain unclear about the support cyber insurance can provide before, during and after an incident.

“For brokers, that presents a real opportunity. Clients are looking for guidance, not just a quote. By helping businesses better understand their exposures and the services available to support resilience and recovery, brokers can play an important role in closing the gap between awareness and action.”

The research canvassed the views of SMEs with revenues below the equivalent of £19m across global markets.

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