TITLE:
Pricing the Cost of Cybercrime—A Financial Protection Approach
AUTHORS:
Thomas Poufinas, Nikolaοs Vordonis
KEYWORDS:
Cybercrime, Cyber-Attack, Cyber Insurance, Digital Life, Pure Premium, Protec-tion, Economic Loss
JOURNAL NAME:
iBusiness,
Vol.10 No.3,
August
16,
2018
ABSTRACT: Infrastructures, businesses, end-users and services
offered in the digitally integrated environment are exposed to a wide range of
risks such as denial of service, hacking, phishing, ransomware, viruses, etc.
Consequently, along with their physical life, individuals and organizations
have to secure their digital life as well. Digital threats may have a major
economic impact both on the individuals and the society, through the direct
loss of income and/or property or even an indirect reduction of the individuals’
contribution back to the society and the state. The purpose of this paper is to
study the effect of cyber-attacks to the economy, to price the associated cost
and to recommend possible measures that internet service providers (ISPs) and
policy makers can apply in order to mitigate these risks. In order to achieve
that, we employ insurance (actuarial) pricing techniques to calculate the cost
of cyber-attacks for an individual and for the economy of a country in total.
We are therefore at the same time in place to recommend insurance coverage
solutions that can assist in protecting the entity of interest from cyber
risks. This resembles to the calculation of a risk premium, as the premium is
calculated taking into account only the probability of occurrence of a
cyber-attack and the interest rate and not any other loadings. In this context,
we mimic the pricing of a policy that provides coverage for the cyber-attack,
as well as the calculation of the amount that has to be set aside in order to
compensate for the one-off economic loss suffered by the individual, as a
result of its occurrence. Here lies our contribution to the scientific research
in the field of cyber security insurance, as we employ insurance-based
actuarial techniques in order to quantify the relevant loss.