Berkshire’s Warren Buffet warns of ‘huge’ loss potential in cyber

Berkshire Hathaway chairman Warren Buffett has expressed significant concerns about the potential for "huge losses" in the booming, but still relatively small, cyber insurance market.

During Berkshire Hathaway's annual shareholder meeting, both Buffett and Ajit Jain, the company's top insurance executive, highlighted the unpredictability and risks associated with cyber insurance.

Despite being profitable with insurers seeing up to 20% profit from premiums, the market is fraught with uncertainties. Jain pointed out that losses have been "fairly well contained" to date but cautioned that there's insufficient data to accurately predict future losses.

This uncertainty makes it challenging for insurers to set appropriate premiums, leading Buffett to advise Berkshire agents that they should expect to lose money on cyber insurance policies, regardless of the premium charged​.

Despite Buffet’s negative outlook, Berkshire Hathaway is the sixth-largest issuer of cybersecurity policies in US, underscoring the extent of client need for the product.

One of the major concerns is the risk of aggregated losses from a single cyber incident, such as a major cloud provider failure, which could trigger claims across multiple policies simultaneously. Buffett emphasized that a single catastrophic event could be financially devastating, potentially even "breaking" an insurer that has not priced the risk adequately​.

While the cyber insurance market is growing rapidly, with premiums expected to double over the next few years, there is a significant debate about the manageability of these risks.

Cyber underwriters argue that many cyber risks can be mitigated through basic cybersecurity practices, and that the perception of uncontrollable risk is overstated.

Warren Buffet