Captive Insurance

Incentive-Compatible Service Disruption Reinsurance for Cloud Service Providers

- service disruption insurance scheme (SDIS) for cloud providers.

- The scheme's contributions and payouts are optimally determined, preventing persistent one-way redistribution.

Reinsurance mechanism. This mechanism will smooth the risk of service disruptions across cloud providers, ensuring incentive compatibility while avoiding redistribution of resources.

To develop a reinsurance mechanism for cloud service providers (CSPs) to mitigate the financial impact of service disruptions, ensuring risk-sharing across providers without persistent redistribution.

Service disruptions in cloud services can lead to significant financial losses and reputational damage. Similar to economic shocks in the euro area, cloud service disruptions are often non-correlated across providers, making a reinsurance mechanism feasible and beneficial. Current proposals for mutual insurance among CSPs are typically based on statistical or ad hoc rules, lacking a foundation in economic theory and incentive compatibility.