Cyber risk research in business and actuarial science
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Cyber risk research in business and actuarial science Martin Eling1 Received: 11 August 2020 / Revised: 26 September 2020 / Accepted: 30 September 2020 / Published online: 14 October 2020 © EAJ Association 2020
Abstract We review the academic literature on “cyber risk” and “cyber insurance” in the fields of business (management, economics, finance, risk management and insurance) and actuarial science. Our results show that cyber risk is an increasingly important research topic in many disciplines, but one that so far has received little attention in business and actuarial science. Business research has documented the manifold detrimental effects of cyber risks using event studies and scenario analyses, while economic research is especially concerned with trade-offs between different risk management activities. Quantitative research including papers published in actuarial journals mainly focuses on loss modelling, especially taking dependencies and network structure into account. We categorize the empirical literature on cyber risk to filter out what we know on the frequency, severity and dependence structure of cyber risk. Finally, we list open research questions which demonstrate that cyber risk research is still in its infancy and that there is ample room for future research. Keywords Cyber risk · Cyber insurance · Event studies · Dependence modelling · Network modelling
1 Cyber risk research in business and actuarial science 1.1 Motivation Cyber risks are operational risks to information and technology assets that have consequences for the confidentiality, availability, and integrity of information and information systems (Cebula and Young [16]). Despite its increasing relevance for businesses and society, research on cyber risk remains very limited. Some papers have been published in the computer science domain, but little research has been done in the fields of business and actuarial science. Existing articles emphasize the lack of data and modelling challenges (e.g., Maillart and Sornette [54]; Biener et al. * Martin Eling [email protected] 1
University of St. Gallen, St. Gallen, Switzerland
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[10]), the complexity and dependent risk structure (e.g., Hofmann and Ramaj [44]), and adverse selection and moral hazard problems (e.g., Gordon et al. [40]). More applied research is concerned with the potentially huge losses from worst-case scenarios such as the breakdown of critical infrastructure (e.g., World Economic Forum [82]; Lloyd’s [52]; Long Finance [35]). The literature thus highlights challenges in the risk management and insurability of cyber risks. The intention of this paper is to review the academic literature on “cyber risk” and “cyber insurance” in the fields of business (i.e. journals in the field of management, economics, finance, risk management and insurance) and actuarial science. The results document that cyber risk is an increasingly important research topic in many disciplines,1 but still has received scant attention in the business and actuari
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