Cyber Insurance for Cyber Resilience

Cyber insurance serves as a complementary mechanism to mitigate the financial consequences of cyberattacks, especially after technical defenses and resilience strategies have been deployed to maintain system-level operations, even in the presence of active intrusions. This chapter presents a comprehensive review of a quantitative cyber insurance design framework that integrates both incentive structures and perceptual aspects across multiple stakeholders. The framework is grounded in the interplay between modern attack vectors and corresponding defense mechanisms, with a central focus on the concept of residual risk , the irreducible exposure remaining after all feasible protections are in place. We investigate how insurers can model and price cyber insurance contracts based on their observable information and monitoring capabilities. By comparing design strategies under varying levels of monitoring granularity, we introduce the notion of moral hazard intensity to capture the insurer's challenge in aligning insuree behavior with socially optimal outcomes. Leveraging recent techniques in modeling individual risk preferences, we further examine how perception manipulation can influence both economic outcomes and moral hazard in cyber insurance markets. Through the joint consideration of contract design and risk perception, we demonstrate that cyber resilience can be significantly enhanced under mild assumptions about the observability of insuree actions. Finally, we discuss potential extensions of this framework to more complex environments and explore regulatory interventions that can strengthen the effectiveness and stability of cyber insurance ecosystems.