Insurability of Cyber Risk: An Empirical Analysis
Geneva Papers on Risk and Insurance, Vol. 40, No. 1, 2015
University of St. Gallen, School of Finance Research Paper No. 2015/03
32 Pages Posted: 12 Mar 2015 Last revised: 19 Jan 2016
Date Written: January 7, 2015
Abstract
This paper discusses the adequacy of insurance for managing cyber risk. To this end, we extract 994 cases of cyber losses from an operational risk database and analyze their statistical properties. Based on the empirical results and recent literature, we investigate the insurability of cyber risk by systematically reviewing the set of criteria introduced by Berliner (1982). Our findings emphasize the distinct characteristics of cyber risks compared to other operational risks and bring to light significant problems resulting from highly interrelated losses, lack of data, and severe information asymmetries. These problems hinder the development of a sustainable cyber insurance market. We finish by discussing how cyber risk exposure may be better managed and make several suggestions for future research.
Keywords: Cyber risk, cyber insurance, operational risk, insurability
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