Understanding Risk Aggregation in Insurance Underwriting

In insurance underwriting, the risk of aggregation poses a significant threat, especially in cyber insurance. Even if a policy is written for a $10 million limit per risk, a single event affecting a thousand policies can lead to catastrophic losses. This risk aggregation, often overlooked in fashionable sectors like cyber insurance, can be more damaging than a singular catastrophic event like an earthquake. Insurance companies need to prioritize understanding and managing the aggregation of risks to avoid underpricing policies and potential company-breaking scenarios.