Network protection through insurance: Premium computation for the ON-OFF service model

Outages due to network failures cause relevant economical damages to the network provider and its customers. The network provider is typically held liable towards its customers through the contractual obligations embedded in Service Level Agreements and the associated compensation schemes. The risk associated to such liability can be transferred to a third party through the use of insurance. The insurance premium is computed for the case of a service whose availability is described by an ON-OFF Markov model and when the economical loss is proportional to either the number of failures, the number of long outages, or the cumulative outage duration. We show that the insurance premium is proportional to the duration of the reference measurement period and roughly linear in the service unavailability. When the insurance policy covers SLA violations to a group of customers, we show that the insurance premium depends on the number of customers through a relationship between linear and quadratic.