Insuring The Uninsurable: Cyber Attacks Expose Fault Lines In UK's Risk Architecture

LONDON — The UK's traditional approach to insuring against large-scale threats is under increasing strain, as cyber attacks—particularly those linked to hostile states—threaten to outpace the tools designed to contain them. The warning comes from the chief executive of Pool Re, the government-backed terrorism reinsurer, who said the scheme may be rendered "obsolete" unless the insurance industry and policymakers adapt to a radically changed threat landscape.

At the heart of the problem lies a fundamental mismatch: 20th-century insurance structures attempting to account for 21st-century digital warfare.

The Changing Nature of Threats

Historically, terrorism insurance in the UK has focused on physical damage—explosions, arson, and other conventional attacks. Pool Re, established in 1993 following a string of IRA bombings, was created to ensure that businesses could access cover against terror-related property losses, backed by a government guarantee.

But in 2025, the frontlines have shifted. State-sponsored cyber attacks—ranging from infrastructure sabotage and ransomware to coordinated data breaches—now pose a graver and more diffuse threat. Unlike a bomb in a building, a digital assault can hit thousands of companies simultaneously, paralyse hospitals or banks, and go unattributed for months. Worse, the source often lies in the murky space between espionage and undeclared warfare.

The scale and complexity of such attacks make them almost impossible to insure using existing models.

The Limits of Current Insurance Models

The crux of the issue is that cyber attacks, especially those orchestrated by state actors, defy traditional actuarial methods. Insurers cannot reliably predict frequency, scope, or cost—core components of underwriting.

Pool Re’s current mandate excludes most cyber events unless they result in physical damage linked to a formally recognised act of terrorism. That definition is increasingly inadequate. If a foreign government hacks into the UK’s energy grid, disrupts power, and causes economic havoc—does that count as terrorism, an act of war, or something else entirely?

This legal and definitional ambiguity is one reason insurers are retreating from cyber coverage, or pricing it so restrictively that many companies cannot afford it. The result is a systemic blind spot, where the most serious emerging threats go either uninsured or grossly underinsured.

Regulatory and Policy Gaps

Compounding the problem is a lack of regulatory clarity and national coordination. The UK has no equivalent to the U.S.'s CISA (Cybersecurity and Infrastructure Security Agency), and no comprehensive framework to guide insurers or reinsurers in responding to catastrophic cyber events.

The government has made moves to improve cyber resilience—particularly through the National Cyber Security Centre (NCSC)—but there is little in the way of structured financial backstopping, risk-pooling, or clear policy around liability, response, and recovery.

Without clearer parameters, the private insurance market has little incentive to broaden its appetite for systemic cyber risks. Meanwhile, public infrastructure and private companies alike are left dangerously exposed.

Economic and Market Implications

The stakes are more than theoretical. A major state-sponsored cyber attack on UK infrastructure could ripple across sectors—from finance and logistics to healthcare and retail—causing billions in damages. If insurers refuse coverage or cap payouts, companies may collapse under the weight of uncovered losses.

This has knock-on effects for credit markets, shareholder confidence, and even national security. Cyber resilience is no longer just a matter for IT departments—it’s a matter of economic stability.

While demand for cyber insurance is growing rapidly, especially among large corporates, supply is not keeping pace. Coverage caps remain low, exclusions are growing, and premiums are rising. Smaller firms, meanwhile, are often left entirely unprotected.

Possible Reforms and Recommendations

Industry voices, including Pool Re’s leadership, have floated several potential solutions:

• Revising Pool Re’s mandate to explicitly include certain forms of cyber terrorism, possibly under a redefined legal framework.

• Establishing a new cyber reinsurance scheme, backed by the government, to pool risk for large-scale digital attacks.

• Enhancing threat modeling and attribution protocols, so insurers can better assess and price systemic cyber exposures.

• Incentivising best practices, such as offering lower premiums to firms that meet high cybersecurity standards—analogous to fire codes in commercial buildings.

All of this would require close cooperation between insurers, regulators, the intelligence community, and policymakers—none of whom, historically, are known for moving quickly.

Conclusion

The UK's insurance architecture was built for a different age—one where threats came with warning signs, physical footprints, and recognisable patterns. Today’s digital aggressors don’t play by those rules.

Without meaningful reform, the UK risks entering an era where the most dangerous threats are also the least insurable. That’s not just an industry problem. It’s a national one.

Because in the world of cyber warfare, there are only two kinds of countries: those that have been attacked, and those that don’t know it yet.

Author: Brett Hurll