Should Cyber-Insurance Providers Invest in Software Security?

Conference paper
Part of the Lecture Notes in Computer Science book series (LNCS, volume 9326)

Abstract

Insurance is based on the diversifiability of individual risks: if an insurance provider maintains a large portfolio of customers, the probability of an event involving a large portion of the customers is negligible. However, in the case of cyber-insurance, not all risks are diversifiable due to software monocultures. If a vulnerability is discovered in a widely used software product, it can be used to compromise a multitude of targets until it is eventually patched, leading to a catastrophic event for the insurance provider. To lower their exposure to non-diversifiable risks, insurance providers may try to influence the security of widely used software products in their customer population, for example, through vulnerability reward programs.

We explore the proposal that insurance providers should take a proactive role in improving software security, and provide evidence that this approach is viable for a monopolistic provider. We develop a model which captures the supply and demand sides of insurance, provide computational complexity results on the provider’s investment decisions, and propose different heuristic investment strategies. We demonstrate that investments can reduce non-diversifiable risks and can lead to a more profitable cyber-insurance market. Finally, we detail the relative merits of the different heuristic strategies with numerical results.

Keywords

Economics of security Cyber-insurance Software security Vulnerability discovery 

Notes

Acknowledgments

We thank the reviewers for their comments. We gratefully acknowledge the support by the National Science Foundation under Award CNS-1238959, and by the Penn State Institute for CyberScience.

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Copyright information

© Springer International Publishing Switzerland 2015

Open Access This chapter is distributed under the terms of the Creative Commons Attribution Noncommercial License, which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.

Authors and Affiliations

  1. 1.Vanderbilt UniversityNashvilleUSA
  2. 2.Pennsylvania State UniversityUniversity ParkUSA

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