Insurance Pricing and Refund Sustainability for Cloud Outages

Abstract

Cloud outages may cause heavy economic losses for customers, who may ask the cloud provider for compensation. Cloud providers may therefore wish to insure themselves against that risk. Considering a scenario where outages take place according to a Poisson process and their duration follows a generalized Pareto model, we provide formulas to properly set the insurance premium under three measures of outage severity: number of outages, number of long outages, unavailability. We also assess the sustainability of refunds, by setting thresholds on unit refund per damaging events.