FlipIn: A Game-Theoretic Cyber Insurance Framework for Incentive-Compatible Cyber Risk Management of Internet of Things
This work addresses cyber risk management for IoT systems, offering a novel framework for incentive-compatible insurance, but it is incremental as it builds on existing game-theoretic and insurance concepts.
The authors tackled the problem of managing cyber risks in IoT systems vulnerable to advanced persistent threats by proposing FlipIn, a game-theoretic framework for designing cyber insurance contracts. They showed that optimal contracts cover half of defenders' losses and demonstrated that network connectivity significantly impacts security and insurability.
Internet of Things (IoT) is highly vulnerable to emerging Advanced Persistent Threats (APTs) that are often operated by well-resourced adversaries. Achieving perfect security for IoT networks is often cost-prohibitive if not impossible. Cyber insurance is a valuable mechanism to mitigate cyber risks for IoT systems. In this work, we propose a bi-level game-theoretic framework called FlipIn to design incentive-compatible and welfare-maximizing cyber insurance contracts. The framework captures the strategic interactions among APT attackers, IoT defenders, and cyber insurance insurers, and incorporates influence networks to assess the systemic cyber risks of interconnected IoT devices. The FlipIn framework formulates a game over networks within a principal-agent problem of moral-hazard type to design a cyber risk-aware insurance contract. We completely characterize the equilibrium solutions of the bi-level games for a network of distributed defenders and a semi-homogeneous centralized defender and show that the optimal insurance contracts cover half of the defenders' losses. Our framework predicts the risk compensation of defenders and the Peltzman effect of insurance. We study a centralized security management scenario and its decentralized counterpart, and leverage numerical experiments to show that network connectivity plays an important role in the security of the IoT devices and the insurability of both distributed and centralized defenders.