When a data breach occurs, an organization loses more than just money. There are many other consequences as a result. Data breaches can also result in damage to an organization’s reputation once clients learn that personally identifiable information has been compromised. Other consequences of failing to keep sensitive data secure include loss of intellectual property and diminished stock performance. Some organizations are subject to government investigation, legal issues, intervention from regulatory agencies, and difficulty obtaining insurance coverage after a data breach. Data breaches can also threaten human health and safety in addition to violating their expectation of privacy and discretion. In this post, we consider the many potential consequences of a data breach. From owners of small businesses to government employees, everyone should understand the consequences of failing to implement proper security measures that prevent data breaches.

What Are the Consequences of a Data Breach?

A data breach is a serious matter that can have devastating consequences for individuals, businesses, and governments. When confidential information is leaked or lost due to an unauthorized attack by criminals, the effects can be difficult to deal with.

Beyond the damage data breaches cause to consumers, they may also involve litigation and legal issues for the organization. Potential consequences of a data breach include the following.

Financial Loss

First on our list of data breach consequences is financial loss. From government fees to the cost of an internal investigation, financial consequences of a data breach can be significant.

In our post “The Horrible Hidden Costs of a Data Breach,” we explain how financial loss goes far beyond ransom payments. According to this report from IBM, the average data breach costs American organizations $9.44M USD.

Costs incurred by organizations in the aftermath of a data breach include:

• Regulatory fines
• Lawsuits from clients, customers, or watchdog groups
• Upgrades to cybersecurity systems
• Cost to internally investigate a breach
• Partial or full payment of the ransom demand
• Marketing campaign designed to restore consumer trust
• Cost to teach employees about better cybersecurity practices
• Lost revenue
• Higher interest rates on debt
• Insurance premium rate increases

Loss of Intellectual Property and Competitive Edge

Another consequence of data breaches is the loss of intellectual property and erosion of competitive edge in a company’s industry. In their Deloitte Perspectives article “ Seven hidden costs of a cyberattack,” Don Fancher and colleagues explain. Fancher writes that “loss of IP is an intangible cost associated with loss of exclusive control over…proprietary and confidential information.”

Like other consequences of data breaches, it can be difficult to pin down the exact dollar amount related to loss of intellectual property. However, the impact on an organization’s standing within their industry can be long-lasting.

Damage to Reputation & Loss of Consumer Trust

One of the biggest risks associated with a data breach is the damage it can cause to the trust that people have in organizations. If private information is leaked, victims may find it difficult to trust those who were responsible for protecting their personal details.

This could lead to a loss of customers, which could ultimately result in financial losses for businesses. Ping Identity’s 2019 Consumer Survey found “81% [of consumers] would stop engaging with a brand online following a data breach.”

The degree to which a company’s reputation suffers typically depends on their public reaction to the breach. To learn more about the reputational damage of a data breach, read this post.

Diminished Stock Performance & Drops in Share Price

A drop in consumer trust can also impact stock performance and share price. While data breaches rarely have a long-term impact on a company’s stock performance, share price can fall in the immediate aftermath.

In an article for Harvard Business Review, Keman Huang and Stuart Madnick elaborate. Huang and Madnick write that Capital One’s “stock price dropped nearly 6% immediately” after its 2019 attack. The company’s stock price fell 13.89% over two weeks.

However, other companies that suffered data breaches did not see their stock fall. As Huang and Madnick note, “the consequences of a data breach incident may differ.” Consequences vary depending on “industry, firm size, the type of information exposed, and the response strategy.”

Pause in Productivity or Limited Productivity During Internal Investigation

Many organizations are forced to divert resources away from normal operations while investigating the source and extent of a breach. Diminished productivity is yet another consequence of data breaches.

Government Investigation

Following a breach, an organization might face lawsuits brought by consumers who hold that organization responsible for compromising their data. Consumers might sue if personally identifiable or otherwise sensitive data has been leaked. For example, a client might have cause to sue if information related to his or her identity or bank accounts were leaked.

In a resource for business owners, the FTC recommends consulting “with legal counsel….[about] federal and state laws that may be implicated by a breach.” Some clients might have cause to sue if you did not announce or respond to the breach in a timely manner. Their ability to sue varies from state to state.

Identity Theft of Clients, Employees and/or Owners

Another serious consequence is identity theft when social security numbers, bank account information or other data is leaked. Employees, clients, contractors, and owners can all be impacted by identity theft following a data breach.

Emotional Distress of Victims

One rarely discussed consequence is emotional distress experienced by victims of a breach. Of course, everyone expects employees, clients, and owners to experience emotional distress experienced during a breach. This is particularly common when files are held hostage and operations are stalled until a ransom demand is fulfilled.

However, there are lasting emotional and psychological impacts following a breach. In an article for USA Today, Jessica Guynn explains. Guynn notes that data breaches can cause “feelings of powerlessness and vulnerability.”

For those who suffer identity theft and other serious consequences, “data theft can wreck lives.” Quoting Dr. Maria Bada, Guynn notes that “‘the psychological effects of cyber attacks may even rival those of traditional terrorism.’”

Loss of Important Records

If data is never retrieved, a breach could result in the permanent loss of key records. These might include medical records, school records or financial information. In some cases, important government records could also be corrupted or lost in data leaks.

Loss of Insurance Coverage or Difficulty Obtaining Coverage

An increasing number of organizations carry cyber insurance. It has become a necessary cost of doing business for companies operating in many industries.

After a breach, however, premiums often skyrocket. Depending on continuing risk and type of compromised data, some organizations will be deemed “uninsurable” following a security breach.

Threat to Human Life, Health, or Safety

Most significant of all the consequences in this list, certain data breaches can threaten human life, health and/or safety. Important operations—like utilities, traffic lights or hospitals—are sometimes taken off-line during a breach. If so, people can suffer from injury or even loss of life.

Cyberthreats to our power grid are of particular concern. For example, the 2015 cyber incident in Ukraine caused power outages for nearly a quarter million people. Learn more about how the US plans to protect our utilities from cyberthreats here.

The Importance of Protecting Your Organization from Cyber Criminals

A data breach is a threat that must be taken seriously by everyone involved. The threat of a data breach is not just limited to larger companies or government organizations. Small businesses and individuals are also at risk, as hackers may see them as easier targets.

For example, an employee might accidentally click on a phishing email or connect to an unsecured network while working remotely. If so, they could unwittingly expose confidential information.

To avoid becoming a victim of such an attack, it is essential to take measures to protect privacy and ensure security at all times. It may seem inconvenient or costly to implement strong protections against potential threats. However, the alternative of dealing with the devastating consequences of a data breach is far worse.

How to Prevent Data Breaches with Appropriate Security Practices

To protect against these threats, it is essential to ensure appropriate cybersecurity measures are in place. This includes using strong passwords, keeping software up-to-date, and regularly backing up important files. Additionally, businesses should offer cybersecurity training for their employees and invest in reputable security software.

In today’s world, both personal and business information are increasingly stored online. As such, it’s more critical than ever to take action to protect our sensitive information from being leaked or lost. By understanding the risks and implementing best practices, we can work together to lessen the consequences of a potential data breach.