Cyber loss models still render a scatterplot, variance runs high: Guy Carpenter

Insurers should not take cyber event models at face value as their views to the size and shape of extreme tail events remain highly scattered, analysts at global reinsurance broker  Guy Carpenter have warned.

Guy Carpenter has dug deep into its own cyber policy database, covering 1.8 million policies for over $6 billion in GWP, then put them up against the three longest-standing vendors in the class, CyberCube, Guidewire Cyence and Moody's RMS.

While the variation in extreme event model results has narrowed since Guy Carpenter's last run, the tally on a would-be 1-in-50 year event still shows a fivefold range from the smallest result at $5 billion to the largest at $25 billion.

Counter-intuitively, forecast ranges narrow as the tail lengthens. Forecasts for would-be 1-in-200 year events largely hold a two-fold range from $15.6 billion to $33.4 billion, with an average at $25 billion.

For Guy Carpenter, that inverted variance puts some onus on the model forecasts overall. Lower return periods should be better informed by experience and counterfactual analysis. The higher return periods, in contrast, have yet to see any event data on which to base more granular forecasts.

“This suggests that we as an industry need to focus carefully on a collective interpretation of what recent events and near-misses have taught us,” authors wrote. “Some degree of expert judgment” remains in the mix.

The extent to which regional differences are built on varying relative views to a region’s technographic composition and security profile may be changing daily, Guy Carpenter also indicates.

Sorted by event drivers, models appear to agree that ransomware remains the top threat, ahead of cloud events, broadly considered lower cost, and data theft, where only CyberCube stands out for having culled a broader range of possible events.

For its study, Guy Carpenter counted a cyber industry worth $14 billion in GWP in 2022, including $9 billion from US-domiciled firms, up from $2.6 billion when Guy Carpenter last did its study in 2019.

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