A Cyber-Insurance Scheme for Water Distribution Systems Considering Malicious Cyberattacks

As one of the national critical infrastructures, the water distribution system supports our daily life and economic growth, the failure of which may lead to catastrophic results. Besides the uncertainty from the system component failures, cyberattacks are vital to the secure system operation and have great impacts on the reliability of the water supply service. Malicious attackers may intrude into the supervisory control and data acquisition (SCADA) system of pump stations in the water distribution networks and interrupt the water supply to the customers. Cyber insurance is emerging as a promising financial tool in system risk management. In this paper, cyber insurance is proposed for the cyber risk management of the water distribution system. A semi-Markov process (SMP) model is devised to model the cyberattacks against pump stations in the water distribution system. Both the impacts of the independent cyber risks in the individual distribution network and the correlated cyber risks shared across different water distribution networks are evaluated and modeled. A sequential Monte Carlo Simulation (MCS) based algorithm is developed to evaluate the system loss. Cyber insurance premiums for the water distribution networks are designed based on the actuarial principles and potential system losses. Case studies are also performed on multiple representative water distribution networks, and the results demonstrate the validity of the proposed cyber insurance model.