A laptop displays a message after being infected by ransomware as part of a worldwide cyberattack. For most insurance firms, models for volatility are far from robust due to limited clarity on cyber risks.
Photo: Rob Engelaar/AFP/Getty Images
Cyber insurance is the fastest-growing line of insurance business in modern history, permeating most traditional lines of business with very attractive profit margins. What started as a cover to protect companies against hacking has now extended to cover business interruption, extortion, financial fraud, legal liability and system failure arising from cyberattacks.
But while cyber insurance teams have enjoyed the benefits of higher premiums and resulting profits, the broader market systematically underestimates the volatility of the underlying loss distribution.
Discounting Forward-Looking Variables
Traditional approaches toward volatility quantification include the collection and analysis of loss information for decades in a relatively stationary world. For most firms,…
