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A Framework for Cyber Security Insurance

New paper: “Policy measures and cyber insurance: a framework,” by Daniel Woods and Andrew Simpson, Journal of Cyber Policy, 2017.

Abstract: The role of the insurance industry in driving improvements in cyber security has been identified as mutually beneficial for both insurers and policy-makers. To date, there has been no consideration of the roles governments and the insurance industry should pursue in support of this publicĀ­-private partnership. This paper rectifies this omission and presents a framework to help underpin such a partnership, giving particular consideration to possible government interventions that might affect the cyber insurance market. We have undertaken a qualitative analysis of reports published by policy-making institutions and organisations working in the cyber insurance domain; we have also conducted interviews with cyber insurance professionals. Together, these constitute a stakeholder analysis upon which we build our framework. In addition, we present a research roadmap to demonstrate how the ideas described might be taken forward.

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Analyzing Cyber Insurance Policies

There’s a really interesting new paper analyzing over 100 different cyber insurance policies. From the abstract:

In this research paper, we seek to answer fundamental questions concerning the current state of the cyber insurance market. Specifically, by collecting over 100 full insurance policies, we examine the composition and variation across three primary components: The coverage and exclusions of first and third party losses which define what is and is not covered; The security application questionnaires which are used to help assess an applicant’s security posture; and the rate schedules which define the algorithms used to compute premiums.

Overall, our research shows a much greater consistency among loss coverage and exclusions of insurance policies than is often assumed. For example, after examining only 5 policies, all coverage topics were identified, while it took only 13 policies to capture all exclusion topics. However, while each policy may include commonly covered losses or exclusions, there was often additional language further describing exceptions, conditions, or limits to the coverage. The application questionnaires provide insights into the security technologies and management practices that are (and are not) examined by carriers. For example, our analysis identified four main topic areas: Organizational, Technical, Policies and Procedures, and Legal and Compliance. Despite these sometimes lengthy questionnaires, however, there still appeared to be relevant gaps. For instance, information about the security posture of third-party service and supply chain providers and are notoriously difficult to assess properly (despite numerous breaches occurring from such compromise).

In regard to the rate schedules, we found a surprising variation in the sophistication of the equations and metrics used to price premiums. Many policies examined used a very simple, flat rate pricing (based simply on expected loss), while others incorporated more parameters such as the firm’s asset value (or firm revenue), or standard insurance metrics (e.g. limits, retention, coinsurance), and industry type. More sophisticated policies also included information specific information security controls and practices as collected from the security questionnaires. By examining these components of insurance contracts, we hope to provide the first-ever insights into how insurance carriers understand and price cyber risks.

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