An Actuarial Framework for Power System Reliability Considering Cybersecurity Threats

Cybersecurity has become an emerging issue for the secure operation of power systems. Besides hardening the power system to improve its cybersecurity, cyber insurance is emerging as a promising tool in cyber risk management. In this paper, an actuarial framework is established to capture and reduce the riskiness raised by interdependence among cyber risks, with the aim to enhance cyber insurance market for power systems. Absorbing semi-Markov process (SMP) is proposed to model the cyberattacks on the power grid. Also a stochastic model is developed to reflect the correlation of cyber risks across the power system. A sequential Monte Carlo simulations (MCS) framework is developed to evaluate the interruptions of the power system considering both the physical failures of the components and malicious cyberattacks. Then, the detailed insurance schemes are designed to manage the risks of the power system considering the financial consequences of cybersecurity threats. Case studies are conducted on a test system based on the IEEE Reliability Test System (RTS-79) to illustrate the application of the proposed insurance pricing schemes.