Exact Insurance Premiums for Cyber Risk of Small and Medium-Sized Enterprises

DOI10.1051/MMNP/2022041MaRDI QIDQ6043850zbMATH OpenOpenAlexFDO

Authors N. Lanchier

Publication date 25 May 2023

Published in Mathematical Modelling of Natural Phenomena (Search for Journal in Brave)

Copyright license Creative Commons Attribution 4.0 International

Full work available at URL https://arxiv.org/abs/2110.08910

zbMATH Keywords

aggregate lossbond percolationcyber riskGalton-Watson treeinsurance premium

Mathematics Subject Classification ID

Interacting random processes; statistical mechanics type models; percolation theory (60K35) Actuarial mathematics (91G05)

Abstract: As cyber attacks have become more frequent, cyber insurance premiums have increased, resulting in the need for better modeling of cyber risk. Toward this direction, Jevti'{c} and Lanchier (2020) proposed a dynamic structural model of aggregate loss distribution for cyber risk of small and medium-sized enterprises under the assumption of a tree-based local-area-network topology that consists of the combination of a Poisson process, homogeneous random trees, bond percolation processes, and cost topology. Their model assumes that the contagion spreads through the edges of the network with the same fixed probability in both directions, thus overlooking a dynamic cyber security environment implemented in most networks, and their results give an exact expression for the mean of the aggregate loss but only a rough upper bound for the variance. In this paper, we consider a bidirectional version of their percolation model in which the contagion spreads through the edges of the network with a certain probability moving toward the lower level assets of the network but with another probability moving toward the higher level assets of the network, which results in a more realistic cyber security environment. In addition, our mathematical approach is quite different and leads to exact expressions for both the mean and the variance of the aggregate loss, and therefore an exact expression for the insurance premiums.

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Cites work

• A comprehensive model for cyber risk based on marked point processes and its application to insurance
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• Cyber claim analysis using generalized Pareto regression trees with applications to insurance
• Cybersecurity Insurance: Modeling and Pricing
• Dynamic structural percolation model of loss distribution for cyber risk of small and medium-sized enterprises for tree-based LAN topology
• Extreme data breach losses: an alternative approach to estimating probable maximum loss for data breach risk
• Structural models for fog computing based Internet of things architectures with insurance and risk management applications
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Cited in

(3)

• Pricing of cyber insurance contracts in a network model
• Cybersecurity Insurance: Modeling and Pricing
• Evaluating cyber loss in star-ring and star-bus hybrid networks based on the bond percolation model

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