Cyberterrorism and its Dramatic Impact on Insurance and Security Firms

Abstract

Cyberterrorism has come to be one of the most threatening forms of terrorism in 2019. In the face of the negative implications cyberattacks can have on affected firms and consumers, this article focuses on the flip side of the coin: I hypothesize that cyberattacks can produce abnormal positive returns for the stock prices of insurance and security companies. Heretofore practically ignored by most businesses, companies that specialize in insurance and security dealing with cyberterrorism are experiencing increased positive interest and attention. I conducted an event study analysis to investigate how the stock prices of insurance and security companies changed one day and one week after major cyberattacks on large firms. Such cyberattacks investigated range from the 2013 Yahoo attack to the globally destructive Petya Ransomware attack. Using the P-value as a measure of significance, I found that, on average, the companies realized a consistent, positive abnormal return in 11 of the 15 events one day after an attack. This evidence supported my hypothesis as investors understand that increased cyber activity results in increased cyber-awareness. Both insurance and security companies will likely increase premiums and experience higher quarterly revenues. Moreover, it was found that security companies experienced more positive, abnormal returns than insurance companies, as consumers gravitate towards security in hopes of greater protection.