Cyber Risk Mitigation Strategies

The objective of our research is to contribute to the actuarial literature on cyber risk assessment in order to provide possible solutions for the reduction of the gap between supply and demand of cyber insurance. In particular the aim is to achieve a better understanding in quantifying, managing and pricing cyber risk by means of: a deeper awareness of cyber risks and of the economic damages they produce; the introduction and validation of new actuarial techniques to allow insurers a more efficient management of this emerging class of risk; the design of innovative insurance products and alternative ways of risk transfers to reduce the costs of insurance premiums. In details: the work aims at providing a possible solution for the reduction of the gap between supply and demand of cyber insurance. We set up a model for the dynamics of data breaches trough an Integer Valued GARCH model to consider time-dependent effects. In order to better capture the dynamics of data breaches we refer to INGARCH models that assume data breaches have a zero-in ated Negative Binomial distribution with the purpose of considering the fact that, in some cases, the victims of the breach do not report the attack. We refine loss estimates and risk assessment by looking for lead-lag relationships between cyber risks and economic variables (as in De Giovanni et al. (2021)) . We define a parametric insurance product as a possible way to overcome some of the issues to be faced in analyzing and managing cyber risks described in details in Eling et al. (2021), Eling et al. (2022), Malavasi et al. (2022) and discuss the implications through numerical applications.

REFERENCES
De Giovanni, D., A. Leccadito, and M. Pirra (2021).

On the determinants of data breaches: A cointegration analysis. Decisions in Economics and Finance 44, 141-160.Eling, M., K. Jung, and J. Shim (2022).

Unraveling heterogeneity in cyber risks using quantile regressions. Insurance: Mathematics and Economics 104, 222-242.Eling, M., M. McShane, and T. Nguyen (2021).

Cyber risk management: History and future research directions. Risk Management and Insurance Review 24 (1), 93-125.Malavasi, M., G. W. Peters, P. V. Shevchenko, S. Trück, J. Jang, and G. Sofronov (2022).

Cyber risk frequency, severity and insurance viability. Insurance: Mathematics and Economics 106, 90-114.