Three Economic Arguments for Cyberinsurance

Chapter 16, Securing Privacy in the Internet Age, A. Chander, L. Gelman, & M. J. Radin, Stanford University Press, pp. 345-366, 2008

U Illinois Law & Economics Research Paper No. LE04-004

22 Pages Posted: 18 Aug 2004  

Jay P. Kesan

University of Illinois College of Law

Ruperto P. Majuca

University of Illinois at Urbana-Champaign - Department of Economics

William J. Yurcik

University of Illinois at Urbana-Champaign - National Center for Supercomputing Applications (NCSA)

Abstract

We present three economic arguments for cyberinsurance. First, cyberinsurance results in higher security investment, increasing the level of safety for information technology (IT) infrastructure. Second, cyberinsurance facilitates standards for best practices as cyberinsurers seek benchmark security levels for risk management decision-making. Third, the creation of an IT security insurance market redresses IT security market failure resulting in higher overall societal welfare. We conclude that this is a significant theoretical foundation, in addition to market-based evidence, to support the assertion that cyberinsurance is the preferred market solution to managing IT security risks.

Keywords: Cyberinsurance, liability, internet security

Suggested Citation

Kesan, Jay P. and Majuca, Ruperto P. and Yurcik, William J., Three Economic Arguments for Cyberinsurance. Chapter 16, Securing Privacy in the Internet Age, A. Chander, L. Gelman, & M. J. Radin, Stanford University Press, pp. 345-366, 2008; U Illinois Law & Economics Research Paper No. LE04-004. Available at SSRN: https://ssrn.com/abstract=577862

Jay P. Kesan (Contact Author)

University of Illinois College of Law ( email )

504 E. Pennsylvania Avenue
Champaign, IL 61820
United States
217-333-7887 (Phone)
217-244-1478 (Fax)

HOME PAGE: http://www.jaykesan.com

Ruperto P. Majuca

University of Illinois at Urbana-Champaign - Department of Economics ( email )

1301 W. Gregory Drive
Urbana, IL 61801
United States

William J. Yurcik

University of Illinois at Urbana-Champaign - National Center for Supercomputing Applications (NCSA) ( email )

605 E. Springfield Avenue
Champaign, IL 61820
United States

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