Influence of precaution and dynamic post-indemnity based insurance policy on controlling the propagation of epidemic security risks in networks

Abstract

This paper studies how the purchase of insurance policies against epidemic security risks, a voluntary strategy of individuals, impacts the controlling of epidemic security risk propagation in networks and the profit of the insurer. For this purpose, we first formulated a modified agent-based framework that characterizes the coupled dynamics of individual security-protection investment behaviors and epidemic security risk propagation process, to study the effectiveness of insurance policies. Second, we proposed a novel insurance policy that follows the designed “precaution and dynamic post-indemnity” (PDPI) principle, taking the correlated and interdependent characteristics of epidemic security risks into account. We determined how the PDPI insurance policy affects security-protection investment coverage and epidemiological dynamics by tuning the allocation coefficient of insurance funds α and the ratio between the premium and the cost of investment R. The results indicated that, although insurance policies have negative influences on voluntary investment behaviors, the risk propagation can be controlled effectively by appropriate combination of α and R, because the precaution mechanism in the PDPI insurance policy can counteract this side effect by guaranteeing the security-protection investment coverage among insured individuals with larger degrees. We further found that, although the insurance policy cannot lead to the maximal profit when the policy has the best performance on risk propagation prevent, the insurer still can earn positive profits. Finally, some effective PDPI insurance policies against specific investment costs are given. The models and findings shed new and meaningful insights into designing and measuring effective insurance policies associated with security-protection investment in controlling the propagation of epidemic security risks.