A new collaboration between Beazley, Gallagher Re and Munich Re has created a new malware model for systemic cyber insurance industry losses, to estimate the potential losses the cyber insurance industry could face in the wake of a significant malware event.
“The partnership brought together experts in actuarial modelling, technical cybersecurity and underwriting spanning insurance, reinsurance and broking to produce a modelling paper on systemic cyber-risk whose outputs are fully transparent and available to any interested party,” the group writes in its report, Cyber Realistic Disaster Scenario Development and Modelling. “It is hoped that this serves to provide modellers of systemic cyber-risk with a benchmark for calibration of incident costs.”
Market expected to grow
The partnership, they say, focused on malware because of its accepted potential for loss and the perceived difficulty of constraining the insured loss with policy language. “The outputs are intended to be complementary rather than contradictory to existing academic and industry work on systemic cyber-risk,” they write. “Despite the extremity of the scenarios, the model suggests that if they occurred, they would not exhaust a significant proportion of the deployed limit. The modelled losses are over twice the premium collected by the market.” The report goes on to say that the global cyber insurance market is estimated to have generated premiums worth approximately $14-billion in 2023. The market is expected to grow to $15-billion in 2024. Figures in U.S. dollars.)
“The loss ratios incurred suggest that the market would survive a systemic event but highlight the importance of a strong capital base and diversified portfolio,” they state. “A significant malware event would be survivable by the cyber insurance market.”
