Berkshire Hathaway's Ajit Jain Cautions On Cyber Insurance Amid Risks: 'Each Time You Write A Cyber Insurance Policy, You Are Losing Money'

Zinger Key Points
  • Berkshire's Ajit Jain warns against cyber insurance due to unpredictable losses and lack of data, despite its profitability.
  • Major U.S.-listed companies offering cyber insurance include Marsh & McLennan, Aon, Arthur J. Gallagher, Brown & Brown and more.

Cyber insurance has become a very fashionable space these days, said Ajit Jain, the vice chairman of insurance operations for Berkshire Hathaway Inc. BRK BRK. Over the last few years, it has become at least a $10 billion market globally.

Speaking at Berkshire Hathaway’s annual shareholder meeting in Nebraska, Omaha, on Saturday, Jain said that the profitability of cyber insurance is also reasonably high, around 20% of the total premium.

However, he said Berkshire tends to be very careful when considering cyber insurance liabilities because:

  • Knowing the quantum of losses subject to a single occurrence and the aggregation potential for cyber losses is tough.
  • According to Jain, if some cloud operations come to a standstill, the aggregation losses can be huge, and not being able to understand a “worst-case cap on it is what scares us.”
  • There is a difficulty in understanding the loss cost of cyber insurance — not just for a single loss, but for losses over time.

“We have been fairly well contained, out of 100 cents of the dollar of the premium losses over the last four, five years, I think, have not been beyond 40 cents of the dollar, leaving a decent profit margin,” Jain added.

Still, he highlighted that, currently, there isn’t enough data to fully understand the true loss cost.

“I have discouraged [staff] from writing cyber insurances,” Jain said. “Each time you write a cyber insurance policy, you are losing money.”

As a result, while cyber insurance is projected to be a huge business, it could be associated with huge losses.

“Our approach is to sort of stay away from it right now until we can have access to some meaningful data,” Jain cautioned.

Since the pandemic, cyberattacks have surged twofold, according to a report by the International Monetary Fund. While many companies faced minor direct losses, some, like Equifax, endured significant tolls. Equifax, for example, spent over $1 billion on breach compensation and the transformation of its data security following a major 2017 data breach impacting 150 million consumers.

Major US-listed companies providing cyber insurance are: 

  • Marsh & McLennan Companies, Inc. Common StockMMC
  • Aon Plc Class A Ordinary Shares (Ireland)AON
  • Arthur J. Gallagher & Co. Common StockAJG
  • Brown & Brown, Inc. BRO
  • Willis Towers Watson Public Limited Company – Ordinary SharesWTW

Berkshire Hathaway, on Saturday, registered a solid increase in first-quarter operating earnings, driven by strength in its insurance businesses, both in underwriting and investment income. The company’s quarterly operating earnings of $11.22 billion rose over 39% from $8.065 billion in the year-ago quarter.

Photo: Shutterstock

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