Insurance Risks As Fictitious Commodities: The Ongoing Construction of the Cyber-Insurance Market in North America

This paper introduces a new framework in the emerging field of sociology of insurance, one of the most dynamic branch of sociology of risk and uncertainty. Building on the sociology insurance literature shedding light on the epistemic, calculative and cultural construction of private insurability, this paper shifts the analytical focus towards the political-legal and non-competitive constitution of insurance markets. Following Karl Polanyi’s institutional analysis, it analyses the political construction and maintenance – or institutional constitution – of private insurability. It defines insurance markets as institutions designed for the capitalization of substantive, empirically experienced uncertainties into fictitiously commoditized insurance risks. Insurance risks can be conceptualized as fictitious commodities since private insurers, despite the powerful set of incentives and controls provided by insurance business governance, cannot autonomously ensure the stable and profitable commoditization of the underlying uncertainties they capitalize as risks. Moreover, insurers face no financial incentives to completely remove these uncertainties. This explains why the insurance industry depends on policy-making, legislation, regulations, the state as the “ultimate risk manager” and others non-competitive arrangements. Following a discussion of the Polanyian theory of the institutional constitution of markets and the concept of insurance risks as fictitious commodities, this paper presents the case study of the ongoing construction of the cyber-insurance market in North America. With the growth of organizational network infrastructures, e-commerce and big data the insurance industry now offers cyber-insurance to organizations seeking to cover the potential losses and liabilities stemming from cyber attacks and data breaches. Industry insiders suggest that the insurability of cyber risks cannot expand significantly until enough information is collected leading to robust actuarial data. This paper argues that analyzing cyber-insurance risks as fictitious commodities contributes to a better understanding of why the cyber-insurance market is paradoxically rapidly expanding despite facing major obstacles and uncertainties.