Thursday, 27th of June 2019, 12:00 – 1:00

The County Fair Cyber Loss Distribution: Drawing Inferences from Insurance Prices

SR 2, ICT Building,
Technikerstraße 21a, 6020 Innsbruck

Daniel Woods
 University of Oxford 


Quantifying the probability and impact of cyber loss events has proved an elusive quest.  Doing so could help organisations determine the optimal amount of security investment.  This talk looks to the insurance industry to introduce a new approach.  The first part investigates the pricing tables and algorithms used by 26 insurance providers in the USA.  We provide empirical observations on how cyber insurance premiums vary by coverage type, amount, policyholder type, and over time.  The second part introduces a method using Particle Swarm Optimisation to iterate through candidate parameterised distributions with the goal of reducing error in predicting observed prices. We then aggregate the inferred loss models across 6,828 observed prices from all 26 insurers to derive the County Fair Cyber Loss Distribution. We demonstrate its value in decision support by applying it to a theoretical retail firm with annual revenue of $50M. The results suggest that the expected cyber liability loss is $428K, and that the firm faces a 2.3% chance of experiencing a cyber liability loss between $100K and $10M each year.  The method could help organisations better manage cyber risk, regardless of whether they purchase insurance.

The research exchange of Daniel Woods is kindly supported by a BritInn Incoming fellowship.



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