Daily Archives: 2010-06-07

Workshop on the economics of information security 2010

Here is a liveblog of WEIS which is being held today and tomorrow at Harvard. It has 125 attendees: 59% academic, 15% govt/NGO, and 26% industry; the split of backgrounds of 47% CS, 35% econ/management and 18% policy/law. The paper acceptance rate was 24/72: 10 empirical papers, 8 theory and 6 on policy.

The workshop kicked off with a keynote talk from Tracey Vispoli of Chubb Insurance. In early 2000s, insurance industry thought cyber would be big. It isn’t yet, but it is starting to grow rapidly. There is still little actuarial data. But the tndustry can shape behaviour by being in the gap between risk aversion and risk tolerance. Its technical standards can make a difference (as with buildings, highways, …). So far a big factor is the insurance response to notification requirements: notification costs of $50-60 per compromised record mean that a 47m compromise like TJX is a loss you want to insure! So she expects healthy supply and demand model for cyberinsurance in coming years. This will help to shape standards, best practices and culture.

Questions: are there enough data to model? So far no company has enough; ideally we should bring data together from industry to one central shared point. Government has a role as with highways. Standards? Client prequalification is currently a fast-moving target. Insurers’ competitive advantage is understanding the intersection between standards and pricing. Reinsurance? Sure, where a single event could affect multiple policies. Tension between auditability and security in the power industry (NERC) – is there any role for insurance? Maybe, but legal penalties are in general uninsurable. How do we get insurers to come to WEIS? It would help if we had more specificity in our research papers, if we did not just talk about “breaches” but “breaches resulting in X” (the industry is not interested in national security, corporate espionage and other things that do not result in claims). Market evolution? She predicts the industry will follow its usual practice of lowballing a new market until losses mount, then cut back coverage terms. (E.g. employment liability insurance grew rapidly over last 20 years but became unprofitable because of class actions for discrimination etc – so industry cut coverage, but that was OK as it helped shape best employment practice). Data sharing by industry itself? Client confidentiality stops ad-hoc sharing but it would be good to have a properly regulated central depository. Who’s the Ralph Nader of this? Broad reform might come from the FTC; it’s surprising the SEC hasn’t done anything (HIPAA and GLB are too industry-specific). Quantifiability of best practice? Not enough data. How much of biz is cyber? At present it’s 5% of Chubb’s insurance business, but you can expect 8-9% in 2010-11 – rapid growth!

Future sessions will be covered in additional posts…