Insurability of Critical Infrastructures

We fit a Pareto distribution to a sample of documented intentional attacks on critical infrastructure, and we introduce procedures by which unbiased consistent estimators for the auxiliary parameters of this distribution can be found. We then compare these estimators to standard industry practice, drawing conclusions about the relative magnitude of risk premiums for intentional attack. Further, we simulate the bankruptcy risk of any private insurance firm that offers coverage for such attacks by adapting the standard SRI model to our context. Using our estimators in a randomized Pareto process, we run simulations of accumulated net profit and loss for different value at risk parametrizations. Our results suggest that it is highly unlikely any private firm would offer coverage for an intentional attack on critical infrastructure.