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Insurance and enterprise: cyber insurance for ransomware

Author

Listed:
  • Tom Baker

    (University of Pennsylvania Carey Law School)

  • Anja Shortland

    (Kings College London)

Abstract

Selling insurance gives insurers an incentive to manage insured risks. The “insurance-as-governance” literature demonstrates that insurers often make insurance conditional on ex ante risk reduction or mitigation. But insurance governs in support of enterprise, not security for its own sake. Tight underwriting inhibits enterprise—not only for insured businesses but also for the business of insurance. This paper highlights ex post loss reduction as a form of insurance-based governance. Drawing on interviews with industry insiders, we explore how insurers addressed the evolving problems of moral hazard, uncertainty and correlated losses since the 1990s. We find that cyber insurance developed sophisticated remedies to contain liabilities and quickly restore affected IT systems, but largely left security decisions to the insured. This facilitated enterprise in the short run but undermined security in the longer term: funding and expediting ransom payments encourages further attacks. As businesses improved their resilience, cybercriminals adapted and ransoms escalated, calling insurability into question. Yet there remains little appetite for imposing restrictive conditionality in this highly competitive market. Instead, insurers have turned to governments to contain criminal threats and cushion catastrophic losses.

Suggested Citation

  • Tom Baker & Anja Shortland, 2023. "Insurance and enterprise: cyber insurance for ransomware," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 48(2), pages 275-299, April.
  • Handle: RePEc:pal:gpprii:v:48:y:2023:i:2:d:10.1057_s41288-022-00281-7
    DOI: 10.1057/s41288-022-00281-7
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    References listed on IDEAS

    as
    1. Baker, Tom & Griffith, Sean J., 2010. "Ensuring Corporate Misconduct," University of Chicago Press Economics Books, University of Chicago Press, number 9780226035154, October.
    2. Steven Shavell, 1982. "On Liability and Insurance," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 120-132, Spring.
    3. Walter T Karten, 1997. "How to Expand the Limits of Insurability*," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 22(4), pages 515-522, October.
    Full references (including those not matched with items on IDEAS)

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