Under the Lens: Investigating Cyber Vendor Model Divergence

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Among the greatest challenges for cyber writers is constructing their own view of risk to manage cyber exposure accumulation in order to support decisions around capacity constraints and capital deployment. Over the past decade, tremendous progress has been made in the area of cyber risk quantification, including development of a multitude of cyber catastrophe models using a wide range of differing techniques and methodologies.

The models’ results are gradually converging over time as more credible data points become available for calibration and validation. However, a notable degree of variability across model outputs still exists, which can pose a challenge to insurance and reinsurance companies as they formulate a unique view of risk.

Guy Carpenter began exploring this subject at the industry level in our recent report, Through the Looking Glass: Interrogating the Key Numbers Behind Today’s Cyber Market. In this study, a companion to the earlier report, our team conducts an in-depth investigation into the key drivers of cyber catastrophe model differences. This study aims to provide a level of comfort to cyber market participants in constructing their own views of exposure accumulation as their books expand and evolve.

Under the Lens: Investigating Cyber Vendor Model Divergence

Having clarity in the drivers of model variability helps cyber carriers establish their unique views of risk, which in turn supports exposure management and capacity deployment decisions.