economic impact of cybersecurity

Ransomware attacks are of particular concern. While that may be a respectable increase, it pales in comparison to the cybercrime costs incurred. Faced with a domestic worker shortage, the heads of U.S. cyber defense forces CIOs and CISOs at Americas mid-sized to largest businesses are beginning to augment their staff with next-generation AI and ML (machine learning) software and appliances aimed at detecting cyber intruders. As historical claims experience may not be a good predictor of future costs of cyber incidents, scenarios might provide a remedy. The sectors with the highest inoperability may not be those with the highest economic losses, and vice versa. A further barrier to the use of the computable general equilibrium model is that it requires a full optimization. Conversely, this implies that the inoperability curves have a convex shape with a decreasing slope. Its now likely that other companies using similar technology or suppliers will have to investigate whether they were breached at the same time. Computable general equilibrium models are also referred to as applied general equilibrium models (Ballard and Johnson 2017). The first known mention of computer (phone) hacking occurred in a 1963 issue of The Tech. As organizations identify which extreme scenarios are most relevant to their operating context, they can more appropriately plan and budget for the relevant extreme scenario accordingly. 3099067

This might be an indication that an extreme loss scenario like a cross-sector attack is similarly unlikely to other loss events. When White House officials needed an expert to examine the economic impact of cybersecurity threats, they called on Anna Scherbina. Some estimates put the size of the deep web (which is not indexed or accessible by search engines) at as much as 5,000 times larger than the surface web, and growing at a rate that defies quantification. She drew particular attention to data breaches and concluded with her colleagues that malicious cyber activity cost the U.S. economy between $57 billion and $109 billion in 2016, or upwards of 0.58 percent of gross domestic product. 7 They found that cybercrime results in total costs of US$799 billion to 22.5 trillion (1.1 to 32.4 percent of global GDP). This is justified by the fact that the restoration of the last percentage requires a considerable amount of time, whereas the economic performance is almost intact again. There are other elements not modeled in the article, such as potential correlation across scenarios or multiple events in a year, which might further inflate the potential loss estimates. Given the scarcity of data and the various assumptions already needed to estimate the simple inputoutput model presented here, the additional value of a more complex model seems rather limited. Over the past fifty-plus years, the worlds attack surface has evolved from phone systems to a vast datasphere outpacing humanitys ability to secure it. In his 2016 New York Times bestseller Lights Out: A Cyberattack, A Nation Unprepared, Surviving the Aftermath Ted Koppel reveals that a major cyberattack on Americas power grid is not only possible but likely, that it would be devastating, and that the U.S. is shockingly unprepared. The inoperability values are calculated from the initial inoperability vector q(0). This simple observation should be a wake-up call for C-suite executives. As modern technology is being integrated into complex sociotechnological networks in critical infrastructure4 of sectors such as energy, telecommunication, and banking, cyber risk is becoming an increasing threat. The combination of the qualitative categorization of cyber risk scenarios using a standardized taxonomy with the quantitative estimation of economic losses enables a holistic view and allows comparability and scalability for future studies. 23 See Risk Management Solutions, Inc. (2016) and Ruffle et al. We have selected six cyber risk scenarios that cover the most significant cyberattack threats: An extortion of supervisory control and data acquisition networks.17,18, A cyberattack on the health sector and hospitals.20, An impairment of Internet telecommunications.22. The U.S. has a total employed cybersecurity workforce consisting of nearly 925,000 people, and there are currently almost 510,000 unfilled positions, according to Cyber Seek, a project supported by the National Initiative for Cybersecurity Education (NICE), a program of the National Institute of Standards and Technology (NIST) in the U.S. Department of Commerce. There are more complex methodological approaches, such as the fuzzy dynamic inputoutput inoperability model by Panzieri and Setola (2008), in which the inoperability of each sector and the dependency coefficients are expressed as fuzzy numbers. By closing this message, you are consenting to our use of cookies. 2016). The cost of ransomware has skyrocketed and thats a huge concern for small businesses and it doesnt look like theres any end in sight, adds Schober. In distinction to Bounfour et al. Furthermore, in contrast to inputoutput and computable general equilibrium models, econometric models encounter difficulties in distinguishing between direct and indirect effects (Rose 2004). (2018) emphasize that the resulting economic losses are highly sensitive to input parameters.7 To counteract this, our methodology is limited to only two input parameters. 11 See Leontief (1951; 1966; 1974). (2019). The reportconcludes that close to $600 billion, nearly one percent of global GDP, is lost to cybercrime each year, which is up from a2014 studythat put global losses at about $445 billion. 2019). The modern definition of the word hack was coined at MIT in April 1955. 2018). 2011). 2009). (2018), this article examines the impact of six cyber risk scenarios that have already been discussed in the literature and values for inoperability and recovery time based on this literature (i.e.

For example, one limitation of the article is that it depends on various assumptions, many of which are derived based on subjective expert opinions. Since the inoperability of one sector is influenced by that of the other sectors, the inoperability curves can take various shapes (see, e.g., Figure 2). For example, the inputoutput model does not include reputational damage and physical losses that could result from cyberattacks.

Further, it has to be borne in mind that the traditional inputoutput model provides an upper bound estimate of economic losses (Rose and Liao 2005). In the industry studies cited, the scenarios differ in terms of the affected countries. In contrast to Dreyer et al. Policymakers and other decision makers can use our results to qualitatively ascertain how new scenarios they are confronted with fit into our scenario framework and thus arrive at a rough order of magnitude estimate of its economic impact; they also might assess the need for government backstops and other market-intervening tools. While the columns contain information on the production processes, the rows indicate the distribution of the outputs. German authorities reported a ransomware attack caused the failure of IT systems at a major hospital in Duesseldorf, and a woman who needed urgent admission died after she had to be taken to another city for treatment. Economic losses resulting from disasters have been forecasted with three models: econometric models,8 inputoutput models,9 and computable general equilibrium models10 (Avelino and Hewings 2017; Menoni et al. With the help of the macroeconomic models, the effects of different cyber risk scenarios can be analyzed without having to resort to aggregated data from historical events. Cybersecurity Ventures anticipates 12-15 percent year-over-year cybersecurity market growth through 2025. Additionally, a consistent typology and classification of the scenarios proposed in the academic literature and practitioner case studies has not yet been established.5 Comparing and analyzing different cyber risk scenarios is difficult and is further complicated by the absence of a uniform framework for scenario development.

Inoperability Development of the Top 10 Inoperable Sectors. In 2020 the overall economic costs of cybercrime are estimated to be in the area of US$1000 billion per year (Smith, Lostri, and Lewis 2021, 3), up from 600 billion US$per year in 2018 (Lewis 2018, 4). Modeling helps to calculate the damage caused by historical attacks, to predict the impact of cyber risks that have not yet occurred, and to improve decision-making processes. A cyberattack could potentially disable the economy of a city, state or our entire country. The inoperability inputoutput model was extended to the dynamic inoperability inputoutput model by Haimes et al. The variation of the loss estimates is large in many cases, emphasizing the high uncertainty in the loss estimators. Scenarios are plausible descriptions of how the future may develop based on a coherent and internally consistent set of assumptions (Nakicenovic and Swart 2000). Cyber risks can be classified by activity (e.g., criminal and noncriminal), type of attack (e.g., distributed denial of service attack, malware), and source of attack, also called threat actor (e.g., terrorists, criminals, and governments).3 Unlike other risks typically covered by insurers, cyber risks are characterized by a high correlation and the general difficulty of verifying the loss to the insurance company (t et al. Even though natural hazards such as earthquakes and flooding can lead to (physical) IT disruptions, the most probable threats are caused by human-made actions (Ali and Santos 2014). The paper closest to our analysis is Bounfour et al. The initial inoperability value of a particular sector can take any value between zero and one (i.e., 0 5 See, e.g., Brjeson et al. The term 1aii* is defined as the interdependency index of sector i, denoted as i: (11) i=1aii*(11), The degree of interdependency between two sectors is characterized by the interdependency ratio, denoted as ij, and is calculated as follows: (12) ij=ij=1aii*1ajj*(12). Imagine if one company experiences a breach. The total cumulative economic loss amounted to US$23.2 billion. All these variations illustrate the large uncertainty underlying the loss estimations, but are useful to provide some indication for the potential economic magnitude of the scenarios. Nevertheless, given the transparent and standardized approach the article uses, it provides a first step toward a more objective and comparable analysis of the scenarios that are widely discussed among academics and practitioners. Did you know that with a free Taylor & Francis Online account you can gain access to the following benefits? Figure 1. This applies, for example, to data breaches, as these do not affect the operability of the economy. Cyber events are often analyzed in scenarios (see, e.g., Lloyds 2015; Ruffle et al. Egan et al. To our knowledge, this is the first effort to develop a standardized evaluation framework that allows for a consistent assessment of cyber risk scenarios, thereby enabling comparability. Additionally, the estimated direct and systemic costs6 of cyber incidents vary significantly from one study to another and the explanations on the derivation of the estimates are generally not fully transparent. The damage cost estimation is based on historical cybercrime figures including recent year-over-year growth, a dramatic increase in hostile nation-state sponsored and organized crime gang hacking activities, and a cyberattack surface which will be an order of magnitude greater in 2025 than it is today. Although the loss estimators derived in our study are large, the overall picture gives positive signals on the capacity of insurance and reinsurance companies to provide coverage also for extreme cyber loss scenarios. See, for example, the cyber data exfiltration scenario proposed by Risk Management Solutions, Inc. (2016). A 2017 report from Cybersecurity Ventures predicted ransomware damages would cost the world $5 billion in 2017, up from $325 million in 2015 a 15X increase in just two years. This value would be among the top 10 in terms of largest loss events, but it is significantly smaller than the biggest catastrophic losses documented in history, which are the Japan earthquake and tsunami in 2011 with an estimated economic loss of US$210 billion and Hurricane Katrina in 2005 with an estimated economic loss of US$125 billion (see Munich Re 2016). We also emphasize that the results are of interest not only for the actuarial and insurance business domain, but also for a broader risk management and insurance economist audience. Such a broad definition is justified as various and evolving causes constitute the basis of cyber risk. FIGURE 3. As a result of the COVID-19 pandemic, nearly half the U.S. labor force is working from home, according to Stanford University. While the former describes the percentage difference between the ordinary business activity of a sector and its current level of production, the latter quantifies the total damage in monetary values, accounting for ripple effects. FIGURE 2. They monitor and control assets distributed over large geographical areas and use specific control equipment (Cherdantseva et al. Note that the reason why we do not vary the inoperability value for scenario 2 and both inoperability and recovery time for scenarios 4 and 5 was that these values were fixed in the studies we cite to develop Table 3, while all other parameters for all other scenarios were given as corridors. They do, however, usually concentrate on one or a few scenarios and do not propose a consistent analytical framework for the assessment of the respective economic impacts. Numerous industry studies discuss the economic effects of potentially extreme cyber incidents, with considerable variation in the applied methodology and estimated costs. 2 The insured losses for the Japanese tsunami in 2011 were US$40 billion, and for Hurricane Katrina in 2005 they were US$60 billion, illustrating the capacity and realm of insurability (see Munich Re 2016). 2020) and empirical analysis of the cyber insurance market (e.g., Cole and Fier 2020; Kamiya et al. All rights reserved Cybersecurity Ventures 2022, 2022 Cybersecurity Almanac: 100 Facts, Figures, Predictions & Statistics, Cybercrime Costs $10.5 Trillion Annually by 2025, Up from $6 Trillion in 2021, Ransomware Hits Every 2 Seconds In 2031, Up from 11 Seconds in 2021, Cybersecurity Spending To Be $1.75 Trillion Cumulatively, 2021 to 2025, 3.5 Million Unfilled Cybersecurity Jobs By 2021, Up from 1 Million in 2014, Cyberinsurance Market To Reach $34 Billion By 2031, Up From 8.5 Billion In 2021, Cyberinsurance Market To Grow 15 Percent YoY Over The Next Decade. To our knowledge, this is the first effort to consistently analyze the economic impact of various cyber risk scenarios proposed in the applied literature.1 The consistent evaluation framework allows comparability and scalability for potential future scenarios. Of course, it is difficult to estimate the probability of these loss events. All rights reserved Cybersecurity Ventures 2018. 2014), cyber risk cost estimates (which encompass far more than cybercrime) are scarce and vary considerably across studies. The demand-based inputoutput inoperability model is an extension of the traditional Leontief inputoutput model introduced by Haimes and Jiang (2001). The Top Influencers And Brands, Top 5 Cybersecurity Facts, Figures & Statistics 2021 to 2025, Ransomware Damages To Hit $265 Billion In 2031, Up from $20 Billion in 2021, Women Represent 25 Percent of Global Cybersecurity Workforce in 2021, 100 Percent of Fortune 500 Companies Have A CISO in 2021, 6 Billion Internet Users by 2021; 75 Percent of the Worlds Population Online, The World Will Need To Protect 300 Billion Passwords by 2021, MSSPs (Managed Security Service Providers), Privileged Account Management (PAM) Companies, Fortune 500 Chief Information Security Officers (CISOs), Whos Who In Cybersecurity? 5 Howick Place | London | SW1P 1WG. Roughly one million more people join the internet every day. Cited by lists all citing articles based on Crossref citations.Articles with the Crossref icon will open in a new tab. Demand-side inoperability and the resulting economic losses are the two metrics that were obtained from the inoperability inputoutput model. Risk managers in companies outside the insurance field need to get a better understanding of the economic magnitude of different cyber risk scenarios, and to be able to build proper risk management strategies. Regarding the variation of the loss estimators, we present minimum and maximum values by (a) varying the inoperability values only or (b) by varying both inoperability and recovery time. The ratio of the initial inoperability with respect to the inoperability at T is as follows: (10) qi(0)qi(T)=100(10), The actual recovery rate ki of the i th sector is therefore driven by its own recovery rate as well as its interdependence with the other sectors. These worst-case scenarios include various incidents that lead to a disruption of critical infrastructure and thus to economic losses. Register to receive personalised research and resources by email. 6 Direct costs include the costs borne directly by the sector(s) targeted by the cyberattack (e.g., business interruptions, litigation costs, and fines), while systemic costs comprise the macroeconomic impact on productivity experienced by the nonaffected sectors due to the direct damage in the sector(s) affected by the cyberattack (Dreyer et al. Every year, the FBI is keeping tabs on thousands of security breaches.Scherbinas work on the council covered a wide range of important and emerging topics including international finance, FinTech and artificial intelligence. Healthcare has lagged behind other industries and the tantalizing target on its back is attributable to outdated IT systems, fewer cybersecurity protocols and IT staff, extremely valuable data, and the pressing need for medical practices and hospitals to pay ransoms quickly to regain data. We apply the inputoutput model, a transparent methodology allowing other researchers to replicate the results and to analyze their own cyber risk scenarios. The analysis of the economic impacts of cyber risk scenarios has received only limited attention to date in the academic literature compared to the insurability of cyber exposures (see, e.g., Biener et al. The two most extreme cases are a health sector and hospitals scenario and a cross-sector attack scenario with loss estimations of US$28 and 35 billion. During a recent interview, Scherbina reflected on her work for the White House and why she thinks Brandeis is an exciting place to teach. From 2017 to 2019, she served as a senior economist on the Council of Economic Advisers, the executive agency responsible for providing the president of the United States with objective advice on economic policy. The idea of our analysis is to expand these two papers by examining the impact of six widely discussed cyber risk scenarios and filter out values for inoperability and recovery time based on this literature (i.e., historical data and expert opinions, rather than assumptions that are not further justified or motivated). 2021; Li and Liu 2021). 2017; Romanosky 2016; Wang 2019). So what industries will feel the biggest impact from AI? When one company is compromised, other businesses feel the impact too because everybody is so connected through different supply chain connections, and through similarities in the technology they use.

2014). 10 See Kajitani and Tatano (2018) for a recent discussion about the applicability of the computable general equilibrium model to assess short-term economic impacts of natural disasters. Cyber risk includes identity theft, business interruption, reputational damage, theft of customer records, and data recovery costs as well as litigation costs (European Union Agency for Network and Information Security 2018; National Association of Insurance Commissioners 2019). Table 5 presents the total economic losses of the six scenarios. The increasing use of digital technologies in the postpandemic world has further increased the importance of the analyses we present in the article, but again also emphasizes the dynamic nature of cyber risk events. The 10 sectors with the highest cumulative economic losses (in US$million) and their respective average inoperability values of scenario 1 are summarized in Table 4. Companies collect a lot of data and innovate, but they dont always protect their data or intellectual property sufficiently well, said Scherbina. The resilience factor ki of a particular sector i depicts its recovery rate from the external shock and the resulting inoperability. We note that all parameters used for the inputoutput analysis are taken from the respective studies with two exceptions mentioned below the table. The reportattributes the growth over three years to cybercriminals quickly adopting new technologies and the ease of cybercrime growing as actors leverage black markets and digital currencies. (2005). There are 30 million small businesses in the U.S. that need to stay safe from phishing attacks, malware spying, ransomware, identity theft, major breaches and hackers who would compromise their security, says Scott Schober, author of the popular books Hacked Again and Cybersecurity Is Everybodys Business.. Register a free Taylor & Francis Online account today to boost your research and gain these benefits: The Economic Impact of Extreme Cyber Risk Scenarios, 1 Institute of Insurance Economics, University of St. Gallen, St. Gallen, Switzerland, 2 Institute for Assured Autonomy and the Department of Civil and Systems Engineering, Johns Hopkins University, Baltimore, Maryland, Modeling the ripple effects of IT-based incidents on interdependent economic systems, Macro estimates of intangibles cyber-risks, A review of cyber security risk assessment methods for SCADA systems, Cyberattacks and threats during COVID-19: A systematic literature review, Framework for analytical quantification of disaster resilience, An empirical analysis of insurer participation in the U.S. cyber insurance market, Swiss Insurance Association Cyber Working Group, Modeling operational risk incorporating reputation risk: An integrated analysis for financial firms, Cyber operational risk scenarios for insurance companies, Capital requirements for cyber risk and cyber risk insurance, Pricing of cyber insurance contracts in a network model, Cyber risk research impeded by disciplinary barriers, A master attack methodology for an AI-based automated attack planner for smart cities, Cyber claim analysis using Generalized Pareto regression trees with applications to insurance, Leontief-based model of risk in complex interconnected infrastructures, Inoperability input-output model for interdependent infrastructure sectors, Resilience and stability of ecological systems, An analysis of security incidents on the Internet. An unambiguous definition of cyber risk does not exist. 2022 Cybersecurity Ventures. The mean loss estimators presented in the article should thus not be interpreted as point estimates under certainty, but rather as distributions that are uncertain. A standardized framework for the quantification of economic losses due to cyber risks is then proposed to assess the costs of historical and future incidents, which can be applied on a macroeconomic and microbusiness level. Table 3 contains the selected scenarios and the parameters used for the inputoutput analysis. The RAND Corporation addresses the lack of transparency in methodologies, assumptions, and data in its attempt to develop a transparent methodology for estimating global costs of cyber risk (see Dreyer et al. This article describes a standardized and consistent typology and method for the classification of cyber risk scenarios. Cyber risk scenarios are often published in the form of fictional narratives with qualitative descriptions (see, e.g., Risk Management Solutions, Inc. 2016; World Economic Forum 2014). Overall, it thus seems that the scenarios are inside the range of insurability and in principal can be covered by the traditional insurance and reinsurance market (or at least comparable numbers have been covered by the traditional insurance and reinsurance market; for example, the insured loss for Hurricane Katrina was US$40 billion; see Munich Re 2016). Overall, our loss estimations remain in an insurable range from US$0.7 to 35 billion. Top Influencers, 10 Top Cybersecurity Journalists And Reporters, 5 Security Influencers to Follow on LinkedIn, Top 25 Cybersecurity Experts to Follow On Social Media, List of Women in Cybersecurity to Follow on Twitter, Top 100 Cybersecurity Influencers at RSA Conference 2019, The Complete List of Hacker & Cybersecurity Movies, Christopher Porter, SVP & CISO, Fannie Mae, Robert Herjavec, Shark on ABCs Shark Tank, Sylvia Acevedo, CEO, Girl Scouts of the USA, Rob Ross, former Apple Engineer, Victim of $1 Million SIM Swap Hack, CISO Convene at One World Trade Center in NYC, Girl Scouts Troop 1574 Visit Cybercrime Magazine, Women Know Cybersecurity: Moving Beyond 20%, Phishing at a New York Mets Baseball Game, KnowBe4 Documentary: The Making of a Unicorn, Gee Rittenhouse, SVP/GM at Cisco Security, Ken Xie, Founder, Chairman & CEO at Fortinet, Jack Blount, President & CEO at INTRUSION, Theresa Payton, Founder & CEO at Fortalice, Craig Newmark, Founder of Craigslist on Cybersecurity, Kevin Mitnicks First Social Engineering Hack, Troels Oerting, WEFs Centre for Cybersecurity, Mark Montgomery, U.S. Cyberspace Solarium Commission, Sylvia Acevedo, CEO at Girl Scouts of the USA, Brett Johnson: Original Internet Godfather, Spear Phishing Attack Victim Loses $500,000, Laura Bean Buitta, Founder of Girl Security, Sarah Gilbert, Microsofts Gothic Opera Singer, Kevin Mitnick, The Worlds Most Famous Hacker, Mastering Cyber with Dr Jay, SVP at Mastercard, Whos Who In Cybersecurity: Top Influencers, What Are Deep Fakes?

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