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Robustness of Optimal Investment Decisions in Mixed Insurance/Investment Cyber Risk Management.

Alessandro Mazzoccoli1, Maurizio Naldi1,2

  • 1Department of Civil Engineering and Computer Science, University of Rome Tor Vergata, Rome, Italy.

Risk Analysis : an Official Publication of the Society for Risk Analysis
|October 16, 2019
PubMed
Summary

This study explores an integrated risk management strategy combining insurance and security investments. The findings show this mixed approach can reduce overall security expenses, particularly when investments lower insurance premiums.

Keywords:
CybersecurityGordon-Loeb modelrisk managementsecurity economicssecurity investments

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Area of Science:

  • Risk management
  • Insurance and security investments

Background:

  • Traditional risk management often separates insurance and security investments.
  • The interplay between security investments and insurance premiums is not fully understood.
  • Optimizing overall security expenses requires evaluating integrated strategies.

Purpose of the Study:

  • To investigate an integrated risk management strategy combining insurance and security investments.
  • To determine the optimal investment levels for this mixed strategy under various insurance policies.
  • To assess if this integrated approach leads to reduced overall security expenses.

Main Methods:

  • Derivation of optimal investment for a mixed strategy under three insurance policy scenarios: total coverage, partial coverage, and partial coverage with deductibles.
  • Analysis of conditions under which the mixed strategy reverts to insurance alone.
  • Evaluation of the impact of estimation errors in vulnerability and investment-effectiveness.

Main Results:

  • The integrated strategy can reduce overall security expenses under specific conditions.
  • Under certain scenarios (low potential loss, extreme vulnerability), insurance alone is optimal.
  • When the mixed strategy is optimal, insurance premiums often dominate total costs.
  • Accurate vulnerability estimation is crucial for optimal investment decisions.

Conclusions:

  • An integrated risk management strategy offers potential cost savings in security expenses.
  • The effectiveness of security investments is contingent on factors like potential loss and vulnerability.
  • Careful estimation of vulnerability is essential for successful implementation of mixed risk management strategies.