Department seminar by Wei Wei

Please Note: This seminar will be given online.

Insurance Pricing Models for Cyber Risks on Power Grids

Cyber risks have been posing increasing concerns to the public and thus stimulate high demands on cyber insurance products. However, the development of the cyber insurance market has not been matching  the demands, due to two main obstacles. First, the nature of cyber risks is still unknown to insurers because of the lack of data. Second, the potential dependence among cyber risks causes the concern of insolvency risk and calls for new pricing models. In this talk, we focus on cyber risks on power grids. Through simulations from physical models, we are able to generate loss data and uncover some basic characteristics of cyber risks. In particular, the simulation study confirms that dependence generally exists among cyber risks. In order to address insurer’s concern of insolvency raised by dependence, we introduce the idea of global pricing, that is, determine the total premium needed for an insurance risk portfolio first and then allocate the total premium to individual policyholders. Following this idea, we develop a few pricing models and conduct theoretical studies. These pricing models are proven to possess desirable properties and have the potential to encourage virtuous interactions between the insurer and insureds. In the long term, we hope to extend these models to insurance for general cyber risks and promote a healthy development of the cyber insurance market.