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Addressing insurance of data breach cyber risks in the catastrophe framework

Author

Listed:
  • Spencer Wheatley

    (ETH Zurich)

  • Annette Hofmann

    (St. John’s University)

  • Didier Sornette

    (ETH Zurich)

Abstract

Considering data breaches as a man-made catastrophe helps clarify the actuarial need for multiple levels of analysis—going beyond claims-driven loss statistics alone—and calls for specific advances in both data and models. The prominent human element and the dynamic, networked and multi-type nature of cyber risk are perhaps what makes it uniquely challenging. Complementary top-down statistical and bottom-up analytical approaches are discussed. Focusing on data breach severity, we exploit open data for events at organisations in the U.S. We show that this extremely heavy-tailed risk is worsening for external attacker ‘hack’ events. Writing in Q2 of 2018, the median predicted number of ids breached in the U.S. due to hacking in the last 6 months of 2018 was 0.5 billion, with a 5% chance that the figure exceeds 7 billion, doubling the historical total. ‘Fortunately’, the total breach in that period turned out to be near the median.

Suggested Citation

  • Spencer Wheatley & Annette Hofmann & Didier Sornette, 2021. "Addressing insurance of data breach cyber risks in the catastrophe framework," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 46(1), pages 53-78, January.
    • Handle: RePEc:pal:gpprii:v:46:y:2021:i:1:d:10.1057_s41288-020-00163-w
    DOI: 10.1057/s41288-020-00163-w
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    Cited by:

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    3. Bennet Skarczinski & Mathias Raschke & Frank Teuteberg, 2023. "Modelling maximum cyber incident losses of German organisations: an empirical study and modified extreme value distribution approach," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 48(2), pages 463-501, April.
    4. Daniel Zängerle & Dirk Schiereck, 2023. "Modelling and predicting enterprise-level cyber risks in the context of sparse data availability," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 48(2), pages 434-462, April.

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