Policy Documents

Research & Commentary: Cyberinsurance

Matthew Glans –
December 1, 2010

Every day, cyberterrorism, hackers, identity theft, and computer viruses threaten to disrupt the world’s digital networks. Given the increased reliance on computers in the economy and the nation’s basic infrastructure, digital attacks can have severe effects on the national wealth.

Not surprisingly, an insurance market has developed to manage this risk for consumers: the cyberinsurance market. Cyberinsurance is designed to protect its holders from Internet-based risks such as hacking threats, data destruction, and denial-of-service attacks. Managing these risks is just as important as dealing with physical damage from natural disasters, and the market has grown consistently with the rise of the digital economy.

Discussions of whether the cyberinsurance market can sufficiently manage cybersecurity risks are ongoing. Some cybersecurity experts say more government regulation is needed to improve online security. They claim the current, private market for cyberinsurance is not structured to protect the nation’s digital systems.

Other experts both within and outside the cyberinsurance market disagree, citing the value of cyberinsurance as an incentive for improving cybersecurity. Cyberinsurers, like homeowners insurance providers, require certain security measures as a condition of granting coverage. These standards evolve over time, adapting to new threats far more quickly than do government regulations, which are influenced by political pressures. In addition, the cyberinsurance market allows companies to emerge more quickly from cyberattacks without relying on taxpayer money.

The following articles examine from various perspectives the development of the cyberinsurance market and its function in promoting cybersecurity.

Cyber-Insurance Metrics and Impact on Cyber-Security
This White House report examines the role of cyberinsurance and its benefits in improving cybersecurity and makes recommendations on how to improve cybersecurity.

Cyber Insurance as an Incentive for Internet Security
This paper examines the role of insurance in creating incentives to improve Internet security; it finds that the use of insurance increases security on the Internet.

The Evolution of Cyberinsurance
This paper from University of Illinois at Urbana-Champaign examines the development and evolution of cyberinsurance from traditional insurance policies to early cyber-risk insurance policies to current, comprehensive cyberinsurance products.

Is Cybersecurity a Public Good? Evidence from the Financial Services Industry
This paper from the Independent Institute asks whether private businesses, left to their own devices, provide enough cybersecurity or if some form of government involvement is justified.

Insurance and the Computer Industry
This article examines the role the insurance industry will play in determining how cybersecurity systems will be developed.

Cyberinsurance as a Market-Based Solution to the Problem of Cybersecurity—a Case Study
In this case study of the cyberinsurance industry, the authors examine developing cyber-liability legislation and the emerging cyberinsurance market.

The Economic Case for Cyberinsurance
This article from the University of Illinois College of Law and the Department of Economics discusses the benefits of cyberinsurance in developing a strong information technology infrastructure.

Cyber-Insurance Revisited
This paper examines some potential obstacles to the emerging cyberinsurance market.

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the FIRE Policy News Web site at www.firepolicy-news.org, The Heartland Institute’s Web site at www.heartland.org, and PolicyBot, Heartland’s free online research database, at www.policybot.org.

If you have any questions about this issue or The Heartland Institute, contact Heartland Legislative Specialist Matthew Glans at 312/377-4000 or mglans@heartland.org.