Portfolio risk of systemic cloud outage events can be materially reduced through geographical diversification, according to a new report.

Despite the fact that cyber risk does respect ‘borders’, the nature of cloud service delivery means that the impact of systemic loss events can be minimised, according to a joint report from Parametrix and Aon.

The findings show how losses arising from cloud outage events can be diversified within large
re/insurance portfolios. A significant level of diversification can be achieved by underwriting
portfolios of company risks that span continents, or are geographically distanced within the
same continent. However, writing a portfolio that covers companies of varying sizes, but
within the same continent, delivers less diversification.

“In the past few years, the cyber re/insurance market has focused on identifying and
quantifying cyber aggregation events,” said Crystal Boch, US head of cyber analytics at Aon’s
Reinsurance Solutions. “We’ve made a lot of progress in this area and have highlighted the detrimental impacts these events could have on the industry and the economy, recently
demonstrated by the CrowdStrike outage. There has been less focus on how insurers and
reinsurers can diversify their exposures to mitigate the effects of these events on any one
portfolio, this paper aims to make headway in this conversation.”

Sharon Haran, head of Parametrix Analytics, added: “The mainstream belief has been that
diversification of cloud risk was almost impossible to achieve. However, our portfolio modelling
uncovers the clear advantages to be gained by writing a portfolio that spans the globe. We now know how to help our risk carriers manage one of the two key systemic cyber risks.”

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