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Business & Information Systems Engineering

Document Type

Research Paper

Abstract

Service-level agreement (SLA) violations may lead to losses and user dissatisfaction. Despite the fact that a service guarantee can increase the satisfaction level of users, indemnities may not be commensurate with the importance of a service to a user. While predefined penalties may be insufficient to compensate for the losses of one user, another user may not suffer loss from the SLA violation. With an insurance plan, an insurer can reach an agreement with users on the premium and loss coverage volume; insurance can therefore be considered a solution for providing indemnity which is appropriate to the importance of service. An insurer cannot protect users against these losses, which are caused by a single root event, in the same way as it protects them against the losses caused by independent events. In this paper, a novel approach is proposed for providing insurance coverage for such root events by limiting insurance provisions to the users with the highest priority. A criterion is presented for priority assignment to users, and an algorithm is then proposed for providing insurance according to this priority. A game-theoretic analysis is also provided to assess acceptability of the outcome of the proposed algorithm to rational users and insurers. The results of numerical experiments demonstrate the usefulness of the proposed approach for improving the utility of the Service.

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