Time dynamics of cyber risk
Type
conference paper
Date Issued
2023-07-05
Author(s)
Abstract
This paper utilizes three large databases to better understand the characteristics of cyber loss
events, especially how to deal with data biases and how cyber losses evolve over time. We first deal
with the problem of report delay with an extended two-stage model in combination with detailed
information in our data. Then we analyze the frequency and severity of different categories of
cyber events (such as malicious and negligent events) using state-of-art statistical methods for the
detection of structural changes. We document that the frequency is increasing rapidly with the
malicious cyber events growing exponentially in the past two decades but there is no significant
change in loss severity. We also explore the tail dynamics and find that the heavy-tailedness of
cyber events is persistent over time. Finally, we develop a conceptual model with the documented
empirical features (delayed information and heavy-tailedness) and show that they lead to significantly lower insurance demand. This might help explain the low volume of the cyber insurance
market observed today.
events, especially how to deal with data biases and how cyber losses evolve over time. We first deal
with the problem of report delay with an extended two-stage model in combination with detailed
information in our data. Then we analyze the frequency and severity of different categories of
cyber events (such as malicious and negligent events) using state-of-art statistical methods for the
detection of structural changes. We document that the frequency is increasing rapidly with the
malicious cyber events growing exponentially in the past two decades but there is no significant
change in loss severity. We also explore the tail dynamics and find that the heavy-tailedness of
cyber events is persistent over time. Finally, we develop a conceptual model with the documented
empirical features (delayed information and heavy-tailedness) and show that they lead to significantly lower insurance demand. This might help explain the low volume of the cyber insurance
market observed today.
Language
English
Refereed
Yes
Event Title
Workshop on the Economics of Information Security
Event Location
Geneva, Switzerland
Event Date
05.07.02023