US may craft public cyber cat backstop, but wary on moral hazard
The United States will likely plot some form of government-backed catastrophic cyber backstops, but will block out any inclusion of attritional losses and build safeguards against moral hazard on cat events, a top policymaker has suggested.
“The final answer looks less like a straightforward ‘yes’ or ‘no’ than a more nuanced ‘it depends’,” Graham Steele, the US Assistant Treasury Secretary for Financial Institutions said of the pending policy decision during a catastrophic cyber risk conference hosted by the Federal Insurance Office and NYU Stern Volatility and Risk Institute.
A “well-designed” federal insurance response “could address the risks of tail events while incentivising healthy private sector practices,” Steele said of the pending decision.
“Conversely, a poorly designed programme could shift too much risk to the government and reduce firms’ incentives to guard against certain forms of low probability, but nonetheless foreseeable, risks.”
A decision between yes, no and it depends is due shortly, even if details come only much later. As part of the Biden Administration’s National Cybersecurity Strategy released in March 2023 and updated with an action plan in July, the Treasury department’s Federal Insurance Office has to year-end to decide if some form of government programme is merited overall.
One early conclusion on programme shape precedes even the decision on programme existence: government participation is for catastrophe only; attritional losses remain a private sector problem.
“Our assessment of a potential federal insurance response will remain sharply focused on catastrophic cyber risk,” Steele said, citing a “dynamic and growing” private-sector market for attritional.
Within cyber cat, the Feds will not take the front seat, but seek a solution that “cabins catastrophic cyber risk alongside the existing and expanding commercial cyber insurance market.”
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