Private cyber insurance capable of managing most risks

Washington, D.C. (Dec. 19, 2016) – Cyber vulnerability is a growing source of significant risk for both the public and private sectors that has prompted a market for insurance products capable of managing the overwhelming majority of cyber-attacks firms might face, according to a new policy study from the R Street Institute – The Promise And Limits Of Private Cyber Insurance.

The study by R Street Senior Fellow Ian Adams finds the market is growing at a rate of 26 to 50 percent per year. The U.S. insurance industry collected $2.75 billion in cyber insurance premiums in 2015, a total that is expected to grow to $7.5 billion by 2020. Overall industry capacity is currently estimated to be about $500 million.

“Encouragingly, to date, policies with $50 million limits would be able to cover roughly 92 percent of cyber-event claims,” Adams writes.

However, the study acknowledges that some models place the likelihood of a major cyber event that causes between $250 billion and $1 trillion in damage at some point in the next decade to be between 10 and 20 percent. Given the potential for this sort of “black swan” event, some have proposed a government backstop or reinsurance facility to manage the nation’s cyber exposure.

Adams warns policymakers to be cautious about any plan that could dampen development of private solutions or displace private coverage, particularly given the tendency of government insurance programs to inculcate moral hazard, channel funds through inefficient and unpredictable processes, and unnecessarily delay recovery.

“What can be assessed for certain is that the cyber insurance market is growing rapidly and that it already has sufficient capacity to cover the overwhelming bulk of events the market already has faced,” Adams writes. “It is also the case that businesses report they are satisfied with their existing cyber coverages. Unlike in the case of terrorism in the early 2000s, there is no evidence that insureds are requesting coverage limits that insurers and/or reinsurers have been unable or unwilling to fulfill.”

About R Street

The R Street Institute is a non-profit, non-partisan, public policy research organization (“think tank”). Our mission is to engage in policy research and outreach to promote free markets and limited, effective government.

We work extensively on both state and national policy, focusing on issues that other groups tend to neglect. We believe free markets work better than the alternatives. At the same time, we recognize the legislative process calls out for practical responses to current problems. Toward that end, our motto is “Free markets. Real solutions.”

We also differ from other groups on the political right in our dedication to building broad coalitions, working with a wide array of groups who share specific policy goals. This makes us uniquely capable of building support for pragmatic free-market proposals that can earn bipartisan consensus.

The R Street Institute’s original headquarters was located steps from the actual R Street in Washington, D.C. In addition to our D.C. headquarters, we have offices in Florida, Texas, Ohio and California, covering the Southeast, Southwest, Midwest and Western regions, respectively.

SOURCE: R Street