Berkshire Hathaway will remain cyber-shy; too many unknowns lurk
Berkshire Hathaway will continue to steer away from cyber insurance, to the extent possible, given continuing doubts over possible loss trend and aggregation scenarios, top officials have declared.
“We at Berkshire tend to be very, very careful when it comes to taking on cyber insurance liability,” Berkshire Hathaway’s deputy chairman for insurance, Ajit Jain, told the group’s annual shareholder soiree.
Some exposures may be unavoidable as Berkshire units work with select clients requiring breadth of coverage, Jain nonetheless admitted.
The segment has been highly profitable, Jain concedes, and is now certainly highly “fashionable,’ already giving it anathema tones for the traditionalist powerhouse. But the underwriting has proceeded alongside a shortage of the type of data that should underpin pricing, Jain said.
“No matter how much you charge, you should tell yourself that each time you write a cyber insurance policy you are losing money,” Jain said of his instructions to his underwriters. “You can argue about how much you are losing, but the mindset should be ... you are losing money.”
The segment's data shortfall means little information about aggregations. “Not being able to have a worst-case cap on it is what scares us,” Jain said, citing a possible standstill from some cloud operation as example of a “huge” aggregation potential.
But garden variety losses are equally unknown, Jain argued. The industry still has “not enough data to be able to hang your hat on and say what your true loss cost is.”
Event definitions and hair splitting between single event and aggregations adds further unknowns into the calculus, Berkshire Hathaway chair Warren Buffett added.
“Our approach is still stay away from it right now until we can have access to some meaningful data and hang our hat on that data,” Jain told shareholders.
Did you get value from this story? Sign up to our free daily newsletters and get stories like this sent straight to your inbox.
