The Law and Economics of Cyber Insurance Contracts

This Article combines cyber risk literature with insurance law and economics literature to study cyber insurance contracts. It aims to explore to what extent current cyber insurance contracts contribute to social welfare, both theoretically and empirically. First, main trade-offs in insuring cyber risk are discussed within a theoretical framework that also includes account strategic behavior of market participants and impediments for market growth that result from the complex dynamics of cyber risk. Subsequently, a case study in the Netherlands compares the theoretical expectations with the actual state of cyber insurance contracts, prices and market participants. The results suggest that insurers currently halt between two options: either a strategy of rigorous market penetration with easily accessible and attractive insurance products, or a strategy of significant hedging of correlated risks that reduces the potential of cyber insurance. This Article also aims to assist lawyers, legal councils and judges when drafting or reviewing actual cyber insurance contracts.