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Paper Type
Complete
Description
The interdependent and correlated nature of enterprise cyber-risk is a cause of failed low capital cyber (re-)insurance markets to improve cyber-security. In this paper, we propose the use of catastrophic (CAT) bonds as a radical and alternative residual cyber-risk management methodology to alleviate the big supply-demand gap in the current cyber (re-)insurance industry, by boosting capital injection in the latter industry. We lay down conditions under which it is feasible for a cyber-insurer to invest in (a) CAT bonds, and (b) cyber re-insurance services only - both (a) and (b) contributing to dense security-improving cyber insurance markets. Our main result proves that while the use of cyber-CAT bond instruments solves the capital injection problem in cyber (re-)insurance markets to improve enterprise cyber-security, the level of cost to mitigate IT/ICS client information asymmetry (IA) on enterprise cyber-posture is an important factor that can decide the density of cyber-CAT bond trading markets.
Paper Number
1199
Recommended Citation
Pal, Ranjan; Madnick, Stuart; and Siegel, Michael, "Catastrophe Bond Trading Can Boost Security Improving Cyber (Re-)Insurance Markets" (2023). AMCIS 2023 Proceedings. 6.
https://aisel.aisnet.org/amcis2023/sig_sec/sig_sec/6
Catastrophe Bond Trading Can Boost Security Improving Cyber (Re-)Insurance Markets
The interdependent and correlated nature of enterprise cyber-risk is a cause of failed low capital cyber (re-)insurance markets to improve cyber-security. In this paper, we propose the use of catastrophic (CAT) bonds as a radical and alternative residual cyber-risk management methodology to alleviate the big supply-demand gap in the current cyber (re-)insurance industry, by boosting capital injection in the latter industry. We lay down conditions under which it is feasible for a cyber-insurer to invest in (a) CAT bonds, and (b) cyber re-insurance services only - both (a) and (b) contributing to dense security-improving cyber insurance markets. Our main result proves that while the use of cyber-CAT bond instruments solves the capital injection problem in cyber (re-)insurance markets to improve enterprise cyber-security, the level of cost to mitigate IT/ICS client information asymmetry (IA) on enterprise cyber-posture is an important factor that can decide the density of cyber-CAT bond trading markets.
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