Selection and screening in cyber insurance markets
Type
conference paper
Date Issued
2025-09-01
Author(s)
Abstract
This paper examines the interaction between demand-side selection and supply-side
screening in the U.S. cyber insurance market, leveraging novel data from a major
insurance broker. I document two stages of selection: firms with higher cyber risk are
more likely both to engage a broker and to purchase insurance. Insurers primarily
manage risk by capping coverage rather than differentiating prices, and use survey-based
screening that is only weakly correlated with underlying risk. Market-level evidence from a tax reform using a difference-in-differences approach supports the
presence of adverse selection. A theoretical framework with asymmetric information,
financial frictions, and market power rationalizes these findings.
screening in the U.S. cyber insurance market, leveraging novel data from a major
insurance broker. I document two stages of selection: firms with higher cyber risk are
more likely both to engage a broker and to purchase insurance. Insurers primarily
manage risk by capping coverage rather than differentiating prices, and use survey-based
screening that is only weakly correlated with underlying risk. Market-level evidence from a tax reform using a difference-in-differences approach supports the
presence of adverse selection. A theoretical framework with asymmetric information,
financial frictions, and market power rationalizes these findings.
HSG Classification
contribution to scientific community
Event Title
2025 World Risk and Insurance Economics Conference
Event Location
Calgary, Canada
Event Date
August 3 - 7
Subject(s)