1.1 Introduction
Cyber risk refers to the potential loss or harm to an organization resulting from the failure of its information technology systems, data breaches, or cyberattacks such as hacking, phishing, and ransomware (Eling & Schnell, 2016). In today's digital economy, the growing dependence on internet-based operations has significantly increased the exposure of organizations to such risks. As businesses integrate digital technologies into their core operations, the likelihood of data compromise and system disruption becomes more pronounced. For Internet Service Providers (ISPs) like MainOne, which serve as critical enablers of digital connectivity and data management, the implications of cyber risk are particularly severe. A single cyber incident has the potential to cause widespread operational breakdown, reputational damage, and regulatory penalties.
Cyber risk insurance is therefore designed as a financial safeguard that provides coverage for losses resulting from cyber incidents. It serves as a key component of an organization's overall risk management strategy, helping to transfer the financial burden of cyberattacks from firms to insurers (Romanosky et al., 2019).
As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the aim and objectives of the study. Others are significance of the study, scope of work, research hypothesis and questions, limitation of the study and definition of terms.
1.2 Background of Study
Cyber risk has become one of the most pressing challenges facing organizations in the modern digital era. As businesses increasingly rely on digital infrastructures for operations, communication, and data storage, the exposure to cyber threats has grown exponentially. According to Eling and Schnell (2016), cyber risk refers to potential financial losses, disruptions, or damages resulting from failures of information systems due to cyberattacks, data breaches, or other digital vulnerabilities. The global expansion of internet connectivity and digital transformation has amplified the frequency and sophistication of cyber incidents, making cybersecurity and risk management critical priorities for organizations worldwide.
Romanosky et al. (2019) asserted that the rise in cyberattacks has made cyber insurance an essential mechanism for mitigating financial losses associated with such incidents. Cyber risk insurance is designed to provide organizations with financial protection and recovery support in the aftermath of cyber incidents such as data breaches, network failures, or identity theft. However, developing and pricing cyber insurance policies remain complex tasks due to the absence of standardized actuarial models and insufficient historical data on cyber events. Biener, Eling, and Wirfs (2015) contended that unlike traditional forms of insurance such as life or property, cyber risks are dynamic, systemic, and difficult to quantify, posing challenges to insurers in developing reliable premium structures and loss estimations.
The process of actuarial modelling plays a crucial role in insurance management, as it provides the analytical framework for evaluating risk exposure and determining fair premium pricing. Dacorogna (2017) affirmed that actuarial modelling employs statistical, mathematical, and financial tools to estimate future liabilities and ensure that insurers maintain solvency while offering adequate coverage. In the context of cyber insurance, actuarial models must consider the frequency, severity, and correlation of cyber incidents. However, the constantly evolving nature of cyber threats and the scarcity of reliable data hinder the development of precise actuarial models for cyber risk assessment.
In Nigeria, the digital economy is expanding rapidly, with Internet Service Providers (ISPs) such as MainOne playing a vital role in supporting businesses, governments, and individuals with high-speed internet and data connectivity. According to Akinola and Akintunde (2021), the country's growing dependence on digital platforms has led to increased exposure to cyber risks, yet awareness and adoption of cyber insurance remain low. The authors reported that many Nigerian organizations lack adequate understanding of cyber risk transfer mechanisms, and insurers face challenges in designing context-specific insurance products due to limited local actuarial expertise and insufficient regulatory guidance. Furthermore, the absence of structured data and actuarial frameworks for evaluating cyber risk exposure in Nigeria has created a gap in effective risk quantification and insurance pricing.
Okereke and Adeniran (2020) stated that many firms underestimate their vulnerability to cyber threats, assuming that cybersecurity measures alone are sufficient protection, which often leads to underinsurance or complete neglect of cyber insurance policies. On the other hand, insurers encounter difficulties in setting fair premiums because of the unpredictable nature of cyber losses and the lack of standardized actuarial models that reflect local realities (Okereke and Adeniran, 2020).
Eling and Wirfs (2019) affirmed that global insurers are gradually integrating data-driven approaches and advanced analytics into cyber risk modelling to enhance accuracy, yet many developing economies are still lagging behind. MainOne, being one of Nigeria's leading ISPs, provides an ideal case study for examining how cyber risk insurance and actuarial modelling interact within the context of Nigeria's evolving digital landscape. This study is set against the backdrop of growing cyber threats, limited actuarial modelling capacity, and the urgent need for data-driven approaches to improve cyber risk insurance practices among Internet Service Providers in Nigeria.
1.3 Statement of Problems
Investigation revealed that traditional actuarial models developed for property, life, or health insurance are not well-suited for cyber risks because cyber incidents are influenced by dynamic human behavior, technological evolution, and constantly changing threat landscapes (Biener, Eling & Wirfs, 2015). As a result, insurers often face difficulties in quantifying the potential impact of cyber incidents and determining appropriate premium structures.
On the other hand, many organizations, including ISPs like MainOne, have limited awareness or understanding of how cyber insurance functions as part of a comprehensive risk management framework (Wang et al., 2020). Furthermore, the absence of clear actuarial frameworks to evaluate exposure, frequency, and severity of cyber risks limits the ability of insurance providers to accurately price their policies. It is against this backdrop that this study seeks to assess cyber risk insurance and actuarial modelling with a focus on MainOne – Internet Service Provider.
1.4 Aim and Objectives of Study
The aim of the study is to assess the role of cyber risk insurance and actuarial modelling in managing cyber threats within MainOne. In achieving this aim, the following specific objectives were laid out as follows:
- To assess the awareness and perception of cyber risk insurance among MainOne management and stakeholders.
- To analyze the application of actuarial modelling in pricing cyber risk insurance and predicting potential losses.
- To evaluate the existing cyber risk insurance policies and coverage for MainOne.
- To identify gaps and challenges in the current cyber risk insurance system in Nigeria.
- To recommend strategies for enhancing actuarial approaches and policy adoption for ISPs.
1.5 Research Questions
The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:
- What is the current state of cyber risk insurance coverage for MainOne?
- How are actuarial models applied to assess and price cyber risks in the Nigerian context?
- What are the main challenges and gaps in the existing cyber risk insurance system?
- What strategies can be adopted to improve actuarial modelling and policy implementation for ISPs?
- How aware are MainOne management and stakeholders of the benefits and limitations of cyber risk insurance?
1.6 Research Hypothesis
In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.
Hypothesis One
- H0: There is no significant relationship between the application of actuarial modelling and the effectiveness of cyber risk insurance in mitigating cyber threats at MainOne
- H1: There is a significant relationship between the application of actuarial modelling and the effectiveness of cyber risk insurance in mitigating cyber threats at MainOne
Hypothesis Two
- H0: The application of actuarial modelling does not significantly improve the effectiveness of cyber risk insurance in mitigating cyber threats at MainOne.
- H1: The application of actuarial modelling significantly improves the effectiveness of cyber risk insurance in mitigating cyber threats at MainOne
1.7 Significance of Study
It is believed that at the completion of the study, the research will guide insurers in designing better risk assessment models and pricing strategies. The study will also assist MainOne and other organizations in understanding their exposure to cyber threats and the role of insurance in mitigating financial losses.
Furthermore, the study will enable MainOne to make informed decisions regarding the adoption and optimization of cyber insurance policies. In addition, policymakers will be better equipped to design regulatory frameworks that encourage cyber insurance adoption and enhance risk transparency.
Lastly, academics and researchers will obtain empirical data that will support further studies in cyber risk and insurance modelling. More so, the study will enrich literature on cyber risk management in emerging markets.
1.8 Scope of Study
The scope of this research is focused on the assessment of cyber risk insurance and actuarial modelling within MainOne, an Internet Service Provider operating in Lagos State, Nigeria.
1.9 Limitations of the Study
During the course of this study, there were some problems encountered which stood as limitations to the research work. Some of the limitations include:
- Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
- Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
- Initial Cooperation Delay from Respondents: A particular limitation of this work came as a result of the respondent refusal to offer their cooperation at the initial time they were contacted. This contributed in making the success of this research study difficult.
1.10 Definition of Terms
Cyber Risk:
According to Eling and Schnell (2016), cyber risk is the potential for financial loss, operational disruption, or reputational damage resulting from failures in digital systems or cyberattacks. In this study, it refers specifically to risks faced by MainOne in managing internet and data services.
Cyber Insurance:
Romanosky et al. (2019) defined cyber insurance as a financial product that provides compensation for losses resulting from cyber incidents, including data breaches, network interruptions, and cyber fraud. It serves as a risk transfer mechanism for organizations.
Actuarial Modelling:
Dacorogna (2017) stated that actuarial modelling involves the use of statistical, mathematical, and financial techniques to estimate potential insurance losses and design appropriate premiums. In the context of cyber risk, it is used to predict the probability and impact of cyber incidents.
Risk Management:
According to Akinola and Akintunde (2021), risk management is the identification, assessment, and prioritization of risks followed by coordinated strategies to minimize, monitor, and control the probability or impact of unfortunate events.
Internet Service Provider (ISP):
Okereke and Adeniran (2020) affirmed that an ISP is a company that provides individuals and organizations access to the internet and related services. In this study, MainOne represents the ISP under examination.
…
