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AIR develops advanced probabilistic cyber model

22nd October 2018 - Author: Luke Gallin

Global catastrophe risk modeller AIR Worldwide has announced the development of a probabilistic model for cyber risk, which is capable of accounting for security breaches and cloud server provider downtime for global insurance portfolios.

cyber securityThe new cyber model from AIR will be included in the firm’s latest release of ARC (Analytics of Risk from Cyber), and is set for general release on October 31st, 2018.

The new probabilistic cyber model estimates the likelihood, severity and economic and insurance impacts of cyber events, and has been calibrated with public, commercial, and insurance claims data that includes information of over 60,000 global incidents, and the cybersecurity profile of more than 100,000 organisations from around the world.

Prashant Pai, vice president of cyber offerings at Verisk, commented: “Many insurers are challenged to understand how often various types of cyber incidents can occur and how they can affect the performance of their book. As a result, decisions on product development, underwriting, portfolio optimization, and capital allocation tend to be made with limited data; and too much weight is often put on intuition or broad assumptions. This is where probabilistic modeling can help the industry better manage cyber risk globally.”

Scott Stransky, assistant vice president and director of emerging risk modeling at AIR, added: “The detail and quality of the data we have has allowed us to apply innovative stochastic and machine learning techniques to create a model that provides granular output.

Liberty Mutual Reinsurance

“By training our machine learning model on real claims data, the model can differentiate the risk by technographic parameters such as cybersecurity practices, cloud service provider, and the cause of cloud downtime incidents, in addition to firmographic characteristics such as company size and sector. AIR’s philosophy is to be transparent and flexible about the various modeling assumptions we’ve made, and model users can dig into them and truly own the risk. Additionally, we’ve collaborated with development partners to allow outputs to be displayed to our users at the organization level.”

As well as the new probabilistic model, the latest release of ARC features functionaility to help insurers and reinsurers understand their additional GDPR risk, and also the expansion of AIR’s cyber industry exposure database to regions globally, alongside other enhancements.

Ian Newman, partner and global head of cyber at Capsicum Re, said: “We’re excited to be both one of the first users of AIR’s new probabilistic cyber model and a part of the model’s development. Making use of AIR’s cutting-edge model will help our current and prospective clients better understand their cyber exposures.

“It will reinforce our ability to develop and deliver innovative cyber insurance solutions, such as cyber industry loss warranties (ILWs), and work with insurance-linked securities (ILS). We also believe analytics are key to the market of the future, which will consist of three core classes: property, casualty, and cyber (PC&C).”

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