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Cyber loss model risk translates to premium mispricing and risk sensitivity
Abstract
In this paper we focus on model risk and risk sensitivity when addressing the insurability of cyber risk. The standard statistical approaches to assessment of insurability and potential mispricing are enhanced in several aspects involving consideration of model risk. Model risk can arise from model uncertainty and parameter uncertainty. We demonstrate how to quantify the effect of model risk in this analysis by incorporating various robust estimators for key model parameters that apply in both marginal and joint cyber risk loss process modelling. Through this analysis we are able to address the question that, to the best of our knowledge, no other study has investigated in the context of cyber risk: is model risk present in cyber risk data, and how does is it translate into premium mispricing? We believe our findings should complement existing studies seeking to explore the insurability of cyber losses.
How cyber insurance influences the ransomware payment decision: theory and evidence
Abstract
In this paper, we analyse how cyber insurance influences the cost–benefit decision-making process of a ransomware victim. Specifically, we ask whether organisations with cyber insurance are more likely to pay a ransom than non-insureds. We propose a game-theoretic framework with which to categorise and distinguish different channels through which insurance may influence victim decision making. This allows us to identify ways in which insurance may incentivise or disincentivise payment of the ransom. Our framework is informed by data from semi-structured interviews with 65 professionals with expertise in cyber insurance, cybersecurity and/or ransomware, as well as data from the U.K. Cyber Security Breaches Survey. We find that perceptions are divided on whether victims with insurance are more (or less) likely to pay a ransom. Our model can reconcile these views once we take into account context specifics, such as the severity of the attack as measured by business interruption and restoration and/or the exfiltration of sensitive data.
What is the potential of compensation funds for addressing COVID-related personal injury?
Abstract
The COVID-19 pandemic continues to present new challenges at the frontiers of social risk. Its significant societal impact has prompted the consideration of alternative frameworks like compensation funds to better allocate the risks and impacts of COVID-related injury. Although there has been discussion about the potential of alternative liability structures for vaccine-related injury, there has been less analysis of the right way to compensate other types of injury, such as long-term illness, disability and death, associated with the SARS-CoV-2 virus. In France, a universal compensation fund for COVID-19-related injuries, designed similarly to asbestos-related schemes, was considered by the parliament. With an eye on scientific knowledge of the best practice in the development and operation of compensation frameworks, this paper analyses the design of such funds in Europe as applied to COVID-19 injury and considers the position of compensation funds in relation to tort law, private insurance and social security models.
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Cognitive abilities and life insurance holdings: evidence from 16 European countries
Abstract
The aim of this study is to examine the relationship between two types of cognitive abilities (numeracy and recall) and life insurance holdings in European countries. Households with better numeracy and recall are more likely to own life insurance. Interaction effects indicate a higher level of education decreases the positive effect of numeracy on life insurance holdings and increases the positive effect of recall on life insurance holdings. Multinomial regressions indicate that recall has a positive impact on the decisions to hold term life, whole life, and both term and whole life insurance policies and a negative impact on the decision not to hold any type of life insurance policy. We also find that recall has a greater impact on the decision to own term life policies than on the decision to own whole life (both term and whole life) policies. One possible reason is whole life policies consist of many options that are difficult to comprehend even with higher cognitive abilities. One implication of this study is marketing by life insurers should take into account household cognitive abilities.
A pandemic business interruption insurance
Abstract
We analyze how pandemic business interruption coverage can be put in place by building on capitalization mechanisms and a portfolio management strategy. As evidenced with COVID-19, pandemics affect economic sectors in differentiated ways: some are very severely affected because their activity is heavily impacted by travel bans and constraints on work organization, while others are more resistant. This opens the door to risk-coverage mechanisms based on a portfolio of financial securities, including long-short positions and options in stock markets. We show that such a strategy allows insurers to offer business interruption coverage in pandemic states, while simultaneously hedging the risks associated with alternating bullish and bearish non-pandemic states. These conclusions contrast sharply with the idea of governments being the only solution to the pandemic insurability problem. They are derived from a theoretical model of corporate risk management, and their practical relevance is illustrated by numerical simulations, using data from the French stock exchange.
Mental health changes and the willingness to take risks
Abstract
Utilizing the longitudinal SOEP data representative of the German population, we find that mental health shocks significantly decrease the willingness to take risks. We also find that mental health improvements increase the willingness to take risks significantly. Our findings are relevant for better understanding the economic decision making of the large number of individuals with mental health issues.