The barriers to sustainable risk transfer in the cyber-insurance market

This paper focuses on the conditions required for achieving economic efficiency in cyber-insurance markets. The constantly evolving nature of cyber-threats and lack of public data sharing make it highly unlikely that quoted cyber-insurance premiums will be considered efficient. To address this issue, Monte Carlo simulations of an artificial cyber-insurance market were developed, and efficient and inefficient outcomes were compared based on the informational setup between market participants. The literature review highlights the essentials of reinsurance and technical actuarial papers relevant to cyber-insurance. Borch's work on describing the conditions required to achieve equilibrium in a reinsurance market is particularly relevant, as is Kaluszka's introduction of optimal reinsurance treaty pricing derived from classical literature. Schlesinger and Doherty's treatment of issues associated with incomplete insurance markets suggests that focusing on correlation of risks is essential for making use of incomplete markets theory. The paper examines the impact of diverse anticipations regarding cyber-losses for firms, insurers, and reinsurers in an artificial market. Optimal involvement of reinsurance was computed under different assumptions regarding the distribution of risks. The limited involvement of reinsurers when loss expectations are not shared leads to increased premia and lower overall capacity, suggesting that better data sharing and external sources of risk tolerant capital are necessary for sustainability. Further work could include considering correlations between losses using more complex loss-generating functions than those used in this study. It would also be instructive to compare results under high loss scenarios proposed by various distributions reviewed in Section II.2. In conclusion, smooth risk transfer is crucial for developing a well-functioning and sustainable insurance market. However, achieving economic efficiency in cyber-insurance markets requires better data sharing and external sources of risk tolerant capital due to the dynamic nature of cyber-threats and absence of reliable centralized incident reporting.

Exploring Economic Efficiency in Cyber-Insurance Markets

The constantly evolving nature of cyber-threats and lack of public data sharing make it highly unlikely that quoted cyber-insurance premiums will be considered efficient. To address this issue, a research paper was written to explore the conditions required for achieving economic efficiency in cyber-insurance markets. This article will provide an overview of the research paper, including its literature review, findings, and conclusions.

Literature Review

The literature review highlights the essentials of reinsurance and technical actuarial papers relevant to cyber-insurance. Borch's work on describing the conditions required to achieve equilibrium in a reinsurance market is particularly relevant, as is Kaluszka's introduction of optimal reinsurance treaty pricing derived from classical literature. Schlesinger and Doherty's treatment of issues associated with incomplete insurance markets suggests that focusing on correlation of risks is essential for making use of incomplete markets theory.

Findings

Monte Carlo simulations were developed to examine the impact of diverse anticipations regarding cyber-losses for firms, insurers, and reinsurers in an artificial market. Optimal involvement of reinsurance was computed under different assumptions regarding the distribution of risks. The limited involvement of reinsurers when loss expectations are not shared leads to increased premia and lower overall capacity, suggesting that better data sharing and external sources