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Cyber Insurance: Action Needed to Assess Potential Federal Response to Catastrophic Attacks

GAO-22-104256 Published: Jun 21, 2022. Publicly Released: Jun 21, 2022.
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Fast Facts

Cyber insurance can help offset costs of some common cyber risks, like data breaches or ransomware. But cyber risks are growing, and cyberattacks targeting critical infrastructure—like utilities or financial services—could affect entire systems and result in catastrophic financial loss.

Insurers and the government's terrorism risk insurance may not be able to cover such losses. For example, the government's insurance may only cover cyberattacks if they can be considered "terrorism" under its defined criteria.

We recommended that Treasury and Homeland Security jointly assess if a federal response is needed to address the situation.

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What GAO Found

U.S. critical infrastructure (such as utilities, financial services, and pipelines) faces increasing cybersecurity risks. Understanding these risks and associated vulnerabilities, threats, and impacts is essential to protecting critical infrastructure.

Cybersecurity Vulnerabilities, Threats, and Impacts

Vulnerabilities. Critical infrastructure has become more vulnerable to cyberattacks for reasons that include greater use of interconnected electronic systems.

Threats. Threat actors—such as nation-states, criminal groups, and terrorists—have become increasingly capable of carrying out cyberattacks on critical infrastructure.

Impacts. Federal and industry data indicate that cyberattacks—including those affecting critical infrastructure—generally have increased in frequency and cost.

Source: Prior GAO reports and GAO analysis of agency and industry documentation.

The effects of cyber incidents can spill over from the initial target to economically linked firms—magnifying damage to the economy. For example, in May 2021 the Colonial Pipeline Company learned that it was the victim of a cyberattack that led to short-lived gasoline shortages.

Cyber insurance and the Terrorism Risk Insurance Program (TRIP)—the government backstop for losses from terrorism—are both limited in their ability to cover potentially catastrophic losses from systemic cyberattacks. Cyber insurance can offset costs from some of the most common cyber risks, such as data breaches and ransomware. However, private insurers have been taking steps to limit their potential losses from systemic cyber events. For example, insurers are excluding coverage for losses from cyber warfare and infrastructure outages. TRIP covers losses from cyberattacks if they are considered terrorism, among other requirements. However, cyberattacks may not meet the program's criteria to be certified as terrorism, even if they resulted in catastrophic losses. For example, attacks must be violent or coercive in nature to be certified.

The Department of the Treasury's Federal Insurance Office (FIO) and the Department of Homeland Security's Cybersecurity and Infrastructure Security Agency (CISA) both have taken steps to understand the financial implications of growing cybersecurity risks. However, they have not assessed the extent to which risks to critical infrastructure from catastrophic cyber incidents and potential financial exposures warrant a federal insurance response. CISA is the primary risk advisor on critical infrastructure and FIO the federal monitor of the insurance sector. Accordingly, they are well-positioned to jointly perform such an assessment. Doing so and reporting the results to Congress can inform deliberations on whether a federal insurance response is warranted.

If such a response were deemed necessary, GAO's framework for providing federal assistance to private market participants (GAO-10-719) could help inform its design. The framework notes the need to define the problem, mitigate moral hazard (that the existence of a federal backstop could result in entities taking greater risks), and protect taxpayer interests. Consistent with these elements, any federal insurance response should include clear criteria for coverage, specific cybersecurity requirements, and a dedicated funding mechanism with concessions from all market participants.

Why GAO Did This Study

Cyber threats to critical infrastructure represent a significant economic challenge. Although cyber incident costs are paid in part by the private cyber insurance market, growing cyber threats have created uncertainty in this evolving market.

The Further Consolidated Appropriations Act, 2020, includes a provision for GAO to study cyber risks to U.S. critical infrastructure and available insurance for these risks. This report examines the extent to which (1) cyber risks for critical infrastructure exist; (2) private insurance covers catastrophic cyber losses and TRIP provides a backstop for such losses; and (3) cognizant federal agencies have assessed a potential federal response for cyberattacks.

GAO reviewed cyber insurance coverage literature and reports on cyber risk and the insurance market. GAO interviewed CISA and FIO officials and industry stakeholders (e.g., critical infrastructure owners, insurers, and brokers) that were selected based on factors such as expertise and market share.


CISA and FIO should jointly assess the extent to which risks to critical infrastructure from catastrophic cyber incidents and potential financial exposures warrant a federal insurance response, and inform Congress of the results of their assessment. Both agencies agreed with the recommendations.

Recommendations for Executive Action

Agency Affected Recommendation Status
Cybersecurity and Infrastructure Security Agency
Priority Rec.
The Director of the Cybersecurity and Infrastructure Security Agency should work with the Director of the Federal Insurance Office to produce a joint assessment for Congress on the extent to which the risks to the nation's critical infrastructure from catastrophic cyberattacks, and the potential financial exposures resulting from these risks, warrant a federal insurance response. (Recommendation 1)
DHS agreed with this recommendation. DHS has collaborated with Treasury on identifying data needs for the agencies' joint assessment of the need for a federal insurance response to address catastrophic cyberattacks. As of March 2024, DHS plans to continue to collaborate with Treasury regarding a joint cyber insurance assessment. To fully implement this recommendation, DHS needs to continue working with Treasury to engage with organizations from critical infrastructure sectors to discuss considerations for a federal insurance response, as DHS has indicated is its intent. An assessment with DHS's analysis of the cyber risks facing critical infrastructure could inform Congress in its deliberations related to addressing the increasing risk of catastrophic cyber incidents for U.S. critical infrastructure.
Federal Insurance Office
Priority Rec.
The Director of the Federal Insurance Office should work with the Director of the Cybersecurity and Infrastructure Security Agency to produce a joint assessment for Congress on the extent to which the risks to the nation's critical infrastructure from catastrophic cyberattacks, and the potential financial exposures resulting from these risks, warrant a federal insurance response. (Recommendation 2)
Treasury agreed with this recommendation. In September 2022 Treasury published a request for information in the Federal Register to solicit comments from stakeholders on topics related to a potential federal insurance response to catastrophic cyber incidents and received 55 responses from a variety of organizations. In March 2024, Treasury stated that it had completed its initial assessment of the potential need for a federal response to catastrophic cyber incidents. The assessment concluded with a decision to further explore the appropriate form of a federal insurance response, in coordination with CISA. Treasury added that it plans to host a conference in May 2024 as part of this next assessment phase. As of March 2024, Treasury had not provided us an update as to when it plans to conclude its overall assessment.

Full Report

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Critical infrastructureCritical infrastructure protectionCritical infrastructure vulnerabilitiesCybersecurityCyberspace threatsHomeland securityInsurance industryTerrorismCatastrophic homeowners insuranceControl systems