Copula Based Actuarial Model for Pricing Cyber-Insurance Policies

Abstract

Cyber-insurance is often suggested as a tool to manage IT security residual risks but the accuracy of premiums is still an open question. Thus, practitioners and academics have argued for more robust and innovative cyber-insurance pricing models. We fill this important gap in the literature by developing a cyber-insurance model using the emerging copula methodology. The premiums for first party losses due to virus intrusions are estimated using three types of insurance policy models. Our approach is the first in the information security literature to integrate standard elements of insurance risk with the robust copula methodology to determine cyber insurance premiums.

Keywords: Cyber-Insurance, Copula, Correlated Risk, Information Security Risk Management