Eric Altamura, COO | SPECTRA
"In my line of work, MSP is a four-letter word."
That's how an underwriter at a major carrier opened a recent call with our team. It's a sentiment that's surprisingly common in cyber insurance circles, this reflexive assumption that managed service providers are a systemic risk time bomb waiting to explode across their portfolio.
Here's the problem: while insurers are treating MSPs like radioactive waste, they're ignoring a $400 billion channel that's already deeply embedded in the very market they're trying to penetrate. And they're missing something even more fundamental: MSPs might actually be the best path to the portfolio diversification they desperately need.
The Math Doesn't Lie - And Neither Does the Market Reality
Let's establish some baseline facts. The MSP channel in North America is a $400 billion market. More than 50% of small and mid-sized businesses outsource at least some aspects of their IT or cybersecurity to an MSP. Meanwhile, cyber insurance sits at roughly $13-15 billion with less than 15% uptake among small businesses for standalone cyber liability coverage.
The idea that insurers can work around MSPs or worse, actively avoid them, isn't just naive. It's leaving massive revenue on the table while simultaneously making their existing portfolio management harder than it needs to be.
Yes, the possibility of one compromised piece of software cascading through thousands of SMBs is the nightmare scenario that keeps underwriters up at night. But here's what the industry is missing: because most MSPs are small, tech-diverse, and regionally focused, they're actually a diversification engine when you understand how to work with them at scale.
Turn the Systemic Risk Logic on Its Head
Most MSPs aren't aligned with a single vendor. They're assembling solutions from multiple providers: Microsoft for cloud services, Okta or Duo for identity management, a different endpoint provider, a separate MDR sitting behind that, and distinct backup and disaster recovery solutions. Some use private data centers. Others use a public cloud. They're verticalized by industry and dispersed geographically.
Compare that to what many insurers are doing now, aligning with specific vendors in the channel. That doesn't reduce risk; it creates more accumulation around single points of failure. You see the problem, right? The thing insurers fear (concentration risk) is exactly what they're creating by avoiding MSPs or only working with specific vendor-aligned programs.
As you bring on more MSPs, identifying good MSPs, you're actually increasing diversification at the technical level, at the industry vertical level, and at the geographic level. This is risk management 101, except insurers are getting it backwards because they're so fixated on the compliance theater (check the box attestations) rather than understanding their true exposure.
Compliance Theater vs. Actually Understanding the Risk
This brings us to the second major miss: insurers are drowning in questionnaires about governance policies while ignoring the actual exposure sitting in front of them.
An exposure-based model would ask: What services is this MSP actually delivering? To how many clients? Are those clients on managed service contracts or just break-fix arrangements? What's the actual deployment quality across their customer base? You might find an MSP with 90% of their revenue from reselling and break-fix, with only 10% on managed services contracts. That's a fundamentally different risk profile than an MSP with high-quality, consistently deployed managed services across their entire book.
But here's the thing: insurers can't do this exposure-based underwriting because they don't have the data. They're taking market share statistics (say, AWS has 20-something percent market penetration) and applying that to their portfolio modeling. Meanwhile, by pure chance, they might have onboarded portfolios with 80% exposure to AWS and they wouldn't even know it. Or the inverse: they're sitting on capital reserved against Azure or CrowdStrike scenarios when their actual portfolio has minimal exposure to those platforms.
This isn't just inefficient. When you're stress testing your portfolio to inform your capital allocation, you're either dramatically over-reserved (locking up capital for risks you don't have) or dramatically under-reserved (because you don't know what you actually have).
The Intelligence Gap No One's Talking About
Here's the final piece insurers are missing: MSPs sit on the front lines. They see every near miss. Every security incident that was remediated before it turned into a claim. Every configuration vulnerability that was caught during routine maintenance.
Insurers only see claims data, the stuff that crossed the threshold into a financial loss. That's like trying to understand battlefield conditions by only studying casualty reports. You're missing the entire picture of what threats these businesses face and how they're successfully defending against them.
There's a massive feedback loop opportunity here. Insurers could share claims intelligence back to MSPs: "Here's what we're seeing drive costs in cyber incidents. Here are the attack vectors that consistently succeed." Armed with that data, MSPs can do targeted marketing to their clients, design solutions that address real world threats, and position themselves as strategic advisors rather than just IT support.
And in return? Insurers get partners who can actually improve the risk quality of the SMB market instead of just screening it out.
The Path Forward: Meet the Market Where It Actually Exists
Despite rapid growth, new entrants, and lower pricing over the past few years, the cyber insurance market continues to struggle when it comes to designing products that are relevant and valuable for small and mid-sized businesses, where adoption rates remain low.
But the fundamentals haven't changed: SMBs need coverage, MSPs are already embedded in this market, and insurers need better ways to understand and price the risk they're taking on.
The solution isn't to avoid MSPs or lump them all together as bad actors. It's to build the infrastructure to distinguish good from bad, work with MSPs as channel partners the way cybersecurity vendors already do, and leverage the diversification and intelligence that comes from a distributed network of service providers.
Because right now, treating "MSP" as a four-letter word isn't protecting your portfolio. It's just ensuring you miss the opportunity while someone else figures it out.