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FRM Part II · FRM Exam Part II · Digital Resilience and Financial Stability: The Quest for Policy Tools in the Financial Sector

A supervisor is assessing why the cyber insurance market may be unable to absorb systemic digital shocks. Which feature of cyber risk most directly limits insurability at the system level?

Correlated losses across many insureds arising from shared technology dependencies, such as a common cloud provider, most limit systemic insurability. One event can trigger simultaneous claims that defeat risk pooling and diversification, constraining the capacity insurers can offer for system-wide digital shocks.

  1. AHighly correlated losses across many insureds from common technology dependencies, such as a shared cloud providerCorrect
  2. BCyber losses are always small and predictable
  3. CInsureds have no ability to change their own risk exposure
  4. DPremiums are set by regulators and cannot reflect risk

Explanation

Common dependencies on shared providers or software mean one event can hit many policyholders at once, producing correlated, accumulating losses that undermine diversification and capacity. Cyber losses are not uniformly small or predictable, and insureds can influence risk through controls. Premiums are not set by regulators in this way.

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