To insure or not to insure: How attackers exploit cyber-insurance via game theory

Cyber-insurance provides organizations with financial protection against losses from cyber incidents. As its adoption grows, organizations face the challenge of balancing investments in cybersecurity defense measures with the acquisition of cyber-insurance. This convergence presents opportunities but also introduces risks. The effects of cyber-insurance on the interplay between cybersecurity investment and attacker strategies remains poorly understood. In this paper, we systematically analyze an organization’s decision-making process regarding optimal cybersecurity investment and cyber-insurance, with a particular focus on the strategic behavior of attackers. Using economic and game-theoretic models, supported by simulation studies, our findings reveal that while cyber-insurance can mitigate financial losses, it may inadvertently weaken overall cybersecurity defenses. Furthermore, we demonstrate that cyber-attacks are not random events but calculated actions influenced by the attacker’s understanding of the organization’s insurance and defense posture. Attackers can exploit cyber-insurance by strategically launching targeted attacks to manipulate an organization’s reliance on insurance and disrupt its investment equilibrium. This manipulation can persist up to a critical threshold, beyond which escalating threats prompt organizations to strengthen their defenses. In this way, attackers effectively “play God,” strategically shaping an organization’s insurance and cybersecurity portfolio. To counter these risks, we propose actionable recommendations to prevent attackers from exploiting the cyber-insurance market, ensuring a more resilient and secure cybersecurity ecosystem.