The county fair cyber loss distribution: Drawing inferences from insurance prices
Insurance premiums reflect expectations about the future losses of each insured. Given the dearth of cyber security loss data, market premiums could shed light on the true magnitude of cyber losses despite noise from factors unrelated to losses. To that end, we extract cyber insurance pricing inform...
| Main Authors: | , , |
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| Format: | Journal article |
| Language: | English |
| Published: |
Association for Computing Machinery
2021
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| _version_ | 1826305276489236480 |
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| author | Woods, D Moore, T Simpson, A |
| author_facet | Woods, D Moore, T Simpson, A |
| author_sort | Woods, D |
| collection | OXFORD |
| description | Insurance premiums reflect expectations about the future losses of each insured. Given the dearth of cyber security loss data, market premiums could shed light on the true magnitude of cyber losses despite noise from factors unrelated to losses. To that end, we extract cyber insurance pricing information from the regulatory filings of 26 insurers. We provide empirical observations on how premiums vary by coverage type, amount, and policyholder type and over time. A method using particle swarm optimisation and the expected value premium principle is introduced to iterate through candidate parameterised distributions with the goal of reducing error in predicting observed prices. We then aggregate the inferred loss models across 6,828 observed prices from all 26 insurers to derive the County Fair Cyber Loss Distribution. We demonstrate its value in decision support by applying it to a theoretical retail firm with annual revenue of $50M. The results suggest that the expected cyber liability loss is $428K and that the firm faces a 2.3% chance of experiencing a cyber liability loss between $100K and $10M each year. The method and resulting estimates could help organisations better manage cyber risk, regardless of whether they purchase insurance. |
| first_indexed | 2024-03-07T06:30:27Z |
| format | Journal article |
| id | oxford-uuid:f5cebfa3-17b3-4649-81d8-a936ed7502e0 |
| institution | University of Oxford |
| language | English |
| last_indexed | 2024-03-07T06:30:27Z |
| publishDate | 2021 |
| publisher | Association for Computing Machinery |
| record_format | dspace |
| spelling | oxford-uuid:f5cebfa3-17b3-4649-81d8-a936ed7502e02022-03-27T12:30:17ZThe county fair cyber loss distribution: Drawing inferences from insurance pricesJournal articlehttp://purl.org/coar/resource_type/c_dcae04bcuuid:f5cebfa3-17b3-4649-81d8-a936ed7502e0EnglishSymplectic ElementsAssociation for Computing Machinery2021Woods, DMoore, TSimpson, AInsurance premiums reflect expectations about the future losses of each insured. Given the dearth of cyber security loss data, market premiums could shed light on the true magnitude of cyber losses despite noise from factors unrelated to losses. To that end, we extract cyber insurance pricing information from the regulatory filings of 26 insurers. We provide empirical observations on how premiums vary by coverage type, amount, and policyholder type and over time. A method using particle swarm optimisation and the expected value premium principle is introduced to iterate through candidate parameterised distributions with the goal of reducing error in predicting observed prices. We then aggregate the inferred loss models across 6,828 observed prices from all 26 insurers to derive the County Fair Cyber Loss Distribution. We demonstrate its value in decision support by applying it to a theoretical retail firm with annual revenue of $50M. The results suggest that the expected cyber liability loss is $428K and that the firm faces a 2.3% chance of experiencing a cyber liability loss between $100K and $10M each year. The method and resulting estimates could help organisations better manage cyber risk, regardless of whether they purchase insurance. |
| spellingShingle | Woods, D Moore, T Simpson, A The county fair cyber loss distribution: Drawing inferences from insurance prices |
| title | The county fair cyber loss distribution: Drawing inferences from insurance prices |
| title_full | The county fair cyber loss distribution: Drawing inferences from insurance prices |
| title_fullStr | The county fair cyber loss distribution: Drawing inferences from insurance prices |
| title_full_unstemmed | The county fair cyber loss distribution: Drawing inferences from insurance prices |
| title_short | The county fair cyber loss distribution: Drawing inferences from insurance prices |
| title_sort | county fair cyber loss distribution drawing inferences from insurance prices |
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