Monday, 12 May 2025
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Warren Buffett worried about ‘huge losses’ in booming insurance market

Buffett and Ajit Jain explain why they're staying away from hot cybersecurity insurance industry

One of the messages that Warren Buffett and Berkshire Hathaway’s top insurance executive, Ajit Jain, sent to investors during the company’s annual shareholder meeting in Omaha last month was that cyber insurance, while currently profitable, still has too many unknowns and risks for Berkshire, a huge player in the insurance market, to be fully comfortable underwriting.

Cyber insurance has become “a very fashionable product,” Jain said at the annual meeting. And it’s been a money maker for insurers, at least to date. He described current profitability as “fairly high” — at least 20% of the total premium ending up in the pockets of insurers. But at Berkshire, the message being sent to agents is one of caution. A primary reason is the difficulty in assessing how losses from a single occurrence don’t spiral into an aggregation of potential cyber losses. Jain gave the hypothetical example of when a major cloud provider’s platform “comes to a standstill.”

“That aggregation potential can be huge, and not being able to have a worst-case gap on it is what scares us,” he said.

“There’s no place where that kind of a dilemma enters into more than cyber,” Buffett said. “You may get an aggregation of risks that you never dreamt of, and maybe worse than some earthquake happening someplace.”

Berkshire is in the cyber insurance business

Industry analysts generally say while some of Berkshire’s caution is warranted, the general state of the cybersecurity insurance marketplace is stabilizing as it becomes profitable. And Gerald Glombicki, a senior director in Fitch Rating’s U.S. insurance group, points out that Berkshire Hathaway is issuing cybersecurity policies despite Buffett’s caution. According to Fitch’s analysis, Berkshire Hathaway is the sixth-largest issuer of such policies. Chubb, which Berkshire recently revealed a big investment in, and AIG are the largest.

“Right now [cybersecurity insurance] is still a viable business model for many insurers,” Glombicki said. It is still a tiny market, representing only one percent of all policies issued, according to Glombicki. Because the cybersecurity business is so small, it gives insurance companies latitude to implement various policies to see what is working, and what isn’t, without a tremendous amount of exposure.

Berkshire, as well as Chubb and AIG, declined to comment.

“There is an element of unpredictability that is very unsettling, and I understand where [Buffett] is coming from, but I think it is really hard to…

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