Cyber risk is a rising concern for organizations in both the public and private sectors. The World Economic Forum’s Global Risks Report 2018 names cyberattacks and cyber warfare as a top cause of disruption in the next five years. It reported that “almost 40 percent of all industrial control systems and critical infrastructure faced a cyberattack at some point in the second half of 2017”.
Researchers have recognized cyber insurance as an effective way to improve resilience against cyber incidents because it speeds up the process of recovery from financial losses and helps insured entities swiftly resume daily operations. It emboldens the insured to pursue business activities and innovations while offloading the potentially prohibitive cost of cyber risks to the insurer. It also offers insured financial incentives by means of premium discounts to improve cybersecurity.
However, after many years of development, the cyber insurance market is still in its infancy. Cyber insurance products are less than satisfactory and often criticized for high premiums, low capacity, and obscure policy language. This research project attempts to investigate issues impeding development in cyber insurance and seeks to provide potential solutions in several aspects, including:
- Better data and modeling for cyber risk assessment;
- Developing a mechanism to incentivize stakeholders to participate in the market;
- Utilizing capital markets to share risks and spur the growth in the insurance market;
- Raising awareness of cyber insurance as risk management tools.
Despite its critical importance, there has been surprisingly scarce literature on the actuarial methodology for assessing and mitigating cyber risk. This project seeks to fill the gap in the current actuarial literature on cyber risk assessment, data analytics, and market solutions. This project will benefit the broader actuarial and academic communities by developing a rich resource on current practice and innovations on cyber risk.
As our research team possesses expertise in actuarial science, law, and engineering, the coalescence of research interests could lead to boundary-breaking solutions. The goal of this research project is to help actuaries and insurers better understand cyber risk and develop more effective cyber insurance products and risk management strategies.