Cyber risk taxonomies: statistical analysis of cybersecurity risk classifications

• Analysing the effectiveness of cyber risk classifications • Evaluating out-of-sample forecasting performance • Showing the restrictiveness of business-driven cyber risk classifications • Offering valuable insights into cyber risk management Cyber risk classifications are widely used in the modeling of cyber event distributions, yet their effectiveness in out of sample forecasting performance remains underexplored. In this paper, we analyze the most commonly used classifications and argue in favor of switching the attention from goodness-of-fit and in-sample predictive performance, to focusing on the out-of sample forecasting performance. We use a rolling window analysis, to compare cyber risk distribution forecasts via threshold weighted scoring functions. Our results indicate that business motivated cyber risk classifications appear to be too restrictive and not flexible enough to capture the heterogeneity of cyber risk events. We investigate how dynamic and impact-based cyber risk classifiers seem to be better suited in forecasting future cyber risk losses than the other considered classifications. These findings suggest that cyber risk types provide limited forecasting ability concerning cyber event loss severity distribution, and cyber insurance rate-makers should utilize cyber risk types only when modeling the cyber event frequency distribution. Our study offers valuable insights for decision-makers and policymakers alike, contributing to the advancement of scientific knowledge in the field of cyber risk management.