Three Economic Arguments for Cyberinsurance

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