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What is Terrorism Risk?
The threat of terrorist attacks around the world continues
to pose a risk to the insurance industry. In a sector where financial
stability is the hallmark of leading firms, the need for complete
portfolio management for terrorism risk is evidenced by major attacks.
The first attack on the World Trade Center in 1993, the 1995 Oklahoma
City Bombing, and the catastrophic events of September 11, 2001 have
shown that even the U.S. is not immune from the effects of terrorism.
Along with countless other terrorist attacks throughout the world, these
events
serve as reminders to the insurance markets that man-made catastrophe
risk should be proactively underwritten and managed. As the terrorism
landscape continues to evolve, the insurance industry is seeking to
quantify, underwrite, manage, and transfer risk from this less familiar
and dynamic
peril.
RMS has developed an extensive terrorism advisors
network consisting
of the world's leading authorities on terrorism risk for collaboration
on the RMS terrorism model. Such expertise has allowed RMS to develop
and offer terrorism modeling solutions to quantify and manage this risk
globally. The RMS® U.S. Terrorism Risk Model provides a
comprehensive analysis of terrorism risk in the U.S., quantifying risk
from both foreign and domestic terrorist organizations. It supports
multi-line risk analysis for both certified and non-certified events
causing property loss, business interruption, and workers compensation
claims.
The model quantifies the impact of a representative
suite of potential terrorist attacks, ranging from various
conventional weapons historically used by terrorists
including chemical, biological, radiological, and nuclear (CBRN)
weapons, also known as "weapons of mass destruction." Attacks are simulated using
sophisticated models that analyze the impact of these weapons on property and
people. Casualty estimates produced by the model can
assist with risk assessment of other insurance lines including life, personal accident, and accidental death and dismemberment.
Attacks are modeled at potential terrorist
targets across the U.S., implementing techniques for target prioritization that
replicate the processes of target selection known to be employed by terrorist organizations. The numbers and types of attacks
incorporated into the model include the potential for
multiple synchronized attacks, a signature of Al Qaeda and its associated
organizations around the globe.
Outside of the U.S., the RMS® Global Terrorism Risk
Model provides the ability to analyze terrorism risk anywhere in the
world. Using a statistical model, a comprehensive range of terrorist
threat groups and attack means are reflected probabilistically. Terrorism is a rapidly changing risk. RMS
regularly assesses and reviews the risk environment, producing a
periodic Terrorism Risk Briefing
for clients and parameterizes the probabilistic model through the
provision of Risk Outlooks. Clients are able to use alternative Risk
Outlooks to perform sensitivity analyses against U.S. exposures and test risk management decisions
under different assumptions for potential future developments. RMS clients are actively using the model to perform a
range of tasks including: Manage Portfolio Risk
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Identify and quantify multi-line exposure concentrations |
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Quantify the greatest potential losses to portfolios under a
management selected benchmark attack scenario |
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Respond to reporting requirements such as the A.M. Best Supplemental
Rating
Questionnaire and the Lloyds Realistic Disaster Scenarios |
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Generate aggregate exceedance probability (AEP) loss distributions
by line of business and in total |
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Analyze key drivers of loss by account, location, target type, and
city |
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Quantify the risk of fire losses following terrorist attacks for
policies without terrorism coverage |
Examine 'What If?' Scenarios
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Consider alternative 'Risk Outlooks' to understand sensitivity of
results to different frequency and probability assumptions
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Evaluate alternative treaty reinsurance or securitization structures
for risk transfer |
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Analyze TRIA impact under various take-up rates |
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Examine impact of exclusions (e.g. CBRN) on re/insurance offerings |
Implement Underwriting Processes
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Develop loss costs by line of business |
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Evaluate and price alternative layers for excess policies or
reinsurance treaties |
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Capture key parameters for risk scoring |
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Design and implement underwriting guidelines to diversify portfolio
risk |
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Understand the relative risk across geographies, asset classes, and
other characteristics of accounts and portfolios with global
exposure |
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