Warren Buffett thinks cyber insurance market could see “huge losses”

Cyber insurance - Losses

Berkshire Hathaway and its head see a chance that this market will experience struggles

Berkshire Hathaway recently held its annual shareholder meeting in Omaha, and there, top exec Warren Buffett and top insurance exec Ajit Jain said that cyber insurance is too risky for the company.

That particular market is currently quite profitable

At the meeting, Jain underscored that while cyber insurance is profitable at the moment and has become “a very fashionable product,” the risks associated with investing in it are quite high.  He said that to date for investors, the market has offered quite a good opportunity for making money. Jain also went on to describe the current profitability of this market as “fairly high”.  This is because about 20 percent of the total premium is profit for the insurers selling those products.

Cyber insurance - High Investment Risks

However, Berkshire also took the opportunity to underscore that this may simply be a profitable period in one that is about to become quite volatile, as the risks associated with this market are notable. As a result, their message is one of caution.

There are several reasons cyber insurance risk is so high

Among the top reasons for this has to do with how challenging it is to assess the losses associated with a single event and how to determine if they will aggregate into notably broader cyber losses.

It is that potential for losses to aggregate that poses one of the largest threats to investors in this market, said Jain.  He provided an example of a potentially catastrophic event such as if the platform of a major cloud provider were to arrive at “a standstill.”

In such a case, Jain explained that “That aggregation potential can be huge, and not being able to have a worst-case gap on it is what scares us.”

Buffett pointed to this market as the highest risk of this nature

According to Buffett, that type of situation, and the aggregation of losses, are never riskier than they are in the cyber insurance market.

“There’s no place where that kind of a dilemma enters into more than cyber,” he said. “You may get an aggregation of risks that you never dreamt of, and maybe worse than some earthquake happening someplace.” Still, Berkshire continues to be a participant in that coverage market. 

On the whole, industry analysts have agreed that there is reason for the caution recommended by Berkshire. That said, in general they also seem to feel that this marketplace is finding its feet, and as it becomes profitable it is also stabilizing.

Note: Live Insurance News is not an investment recommendation website. This article is for educational purposes only and should not be used as advice, recommendation, or any other form of counsel for investment or financial purposes.

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