After Faizal Shahzad was arrested on May 1, 2010, for attempting to detonate a vehicle bomb in Times Square, Mayor Bloomberg commented, “It’s been said that when you find a terrorist, he’ll have a map of New York City in his back pocket.” A few blocks from Times Square is the Port Authority Bus Terminal, where a pipe bomb explosion occurred at 7.20 a.m. local time on Monday, December 11, 2017, in an underground passage, about 200 feet (60 meters) from the bus terminal.
On Thursday April 6, 2017, President Trump ordered a Tomahawk missile attack on a Syrian military airfield. This was a direct response to President Assad’s use of sarin gas to attack Syrian dissidents. Just two days later, the password to an encrypted archive of cyber weapons (stolen from the U.S. National Security Agency) was posted by the so-called Shadow Brokers cyber group. This hacking group is thought to have connections with Russia, which is the leading supporter of the Assad regime. They were angered by President Trump’s action.
An immediate beneficiary of this password release was the Lazarus Group, linked with North Korea, which had been launching ransomware attacks at targets over the previous several months. What they lacked was an effective tool to propagate their ransomware from computer to computer. This missing tool, a Microsoft Windows bug called “EternalBlue”, they now were gifted thanks to Shadow Brokers.
At the start of the RMS Exceedance conference in New Orleans in March this year, I was interviewed for A.M. Best TV on terrorism risk, and specifically asked what I was envisaging for future terrorist attacks.
I replied that terrorists have been thwarted in their ability to produce large explosives for vehicle bombs, and are likely to use vehicles for ramming groups of people. Less than a day later, on March 22, 2017, such an attack took place on Westminster Bridge, London. Over the summer, several other terrorist vehicle ramming attacks have occurred in London, and one in Barcelona.
What a difference a week makes. A week before the tragic events in Manchester, RMS was in New York, and the previous week in London as we hosted over 400 risk professionals from across the (re)insurance industry at two half day terrorism seminars. The seminars featured several of the world’s leading experts on counterterrorism, modeling, and terrorism risk management and highlighted the fluid threat environment, its insurance implications, and the impact of technology on terrorism risk. Continue reading
Some fifteen years after terrorism risk modeling began after 9/11, it is still suggested that the vagaries of human behavior render terrorism risk modeling an impossible challenge, but still the core principles underlying terrorism risk modeling are not widely appreciated. Terrorism risk modeling, as it has developed and evolved from an RMS perspective is unique in being based on solid principles, which are as crucial as the laws of physics are to natural hazard modeling. The recent high-profile terrorist attacks in London, Stockholm, and Paris adhere to many of these principles.
It is likely that very few of the 60 million U.S. citizens who voted for Donald Trump would have done so because of his stance on terrorism insurance. Only because terrorism insurance is too arcane an issue to have come up in the presidential debates. However, many of the nation’s wavering voters may have been swayed by his pledge to make America safer from the scourge of terrorism. Under his presidency, border security will surely be tightened – even if no frontier wall is ever built and changes made to entry decisions for Syrian Muslim refugees into the United States.
Reauthorization of TRIA – Talks Start in 2018
On January 12, 2015, the Terrorism Risk Insurance Program Reauthorization Act of 2015 was signed into law by President Obama. This third extension of the original 2002 Terrorism Risk Insurance Act (TRIA) will sunset at the end of 2020, coinciding with the end of the first term of the Trump presidency. In the drafting of the 2015 reauthorization bill, detailed consideration was given by the House Financial Services Committee to alternative wordings that would have reduced the coverage provided by the U.S. government insurance backstop. One such alternative would have focused U.S. government involvement in the terrorism insurance market on covering terrorism losses from extreme attacks using weapons of mass destruction. When the future of terrorism risk insurance is raised once more on Capitol Hill in 2018, the Republican White House and Congress are likely to seek to further extend the private terrorism insurance market. Though I consider this to be contingent on President Trump keeping his pledge to keep America safe until then.
Balancing Civil Liberties in the Face of Reducing Terrorism Risk
In the democracies of the western alliance, the balance of keeping people safe from terrorism and preserving civil liberty is much debated issue. After the July 2005 London Transport bombings, the head of the British security service, MI5, warned that ‘there needs to be a debate on whether some erosion of civil liberties may be necessary to improve the chances of our citizens not being blown apart as they go about their daily lives’. On a national scale across America, a similar debate was prevalent during the 2016 U.S. presidential election. It may seem that in this instance, the champion of civil liberties, minority rights, and political correctness lost to the conservative advocate of oppressive counter-terrorism action and profiling of terrorist suspects.
Regardless of who occupies the White House, however, terrorist plots against the U.S. will persist and terrorists must be stopped before they move to their attack targets. Success in interdicting these plots depends crucially on intelligence gathered from electronic surveillance. It is well-documented that more intrusive surveillance can successfully increase the chances of lone wolf plots being stopped. And President-elect Trump has already affirmed his readiness to authorize more surveillance. He can claim a public mandate for this: for America to be great again, it has to be safe again – even from lone wolf terrorist plots. After the Orlando nightclub attack on June 12, 2016, perpetrated by the radicalized son of an Afghan immigrant, Donald Trump said that ‘we cannot afford to be politically correct anymore’. And in fighting global Islamist extremism vigorously, he may be able to count on President Putin’s support. While the two world leaders differ on geopolitics, their mutual respect as a President may be maintained through abrasive counter-terrorism action.
When Michael Chertoff was appointed Secretary of Homeland Security, President George W. Bush told him not to let 9/11 happen again – and he didn’t. President-elect Trump will expect a similarly impressive clean sheet. On a more personal level he also has a special interest in increased security against terrorist attacks. His own real estate empire includes some notable potential terrorist targets, including high-profile landmark buildings bearing his name. While the New York Stock Exchange has too tight security to be attacked, in contrast, the Trump Building on Wall Street has easy public access. There are numerous opportunities for terrorist target substitution.
In the 15 years since the terrorist attacks of September 11, 2001, partnerships between the public sector and private industries have yielded more effective security and better public awareness about the threat of terrorism. We may never come to terms with the sheer volume of human loss from that day and among the hundreds of attacks that continue every year. But we have achieved greater resilience in the face of the ongoing realities of terrorism – except for when it comes to looking ahead at recovering from the catastrophic costs for rebuilding in its aftermath.
Terrorism insurance is facing a structural crisis: hundreds of terrorist attacks occur annually, but actual insurance payouts have been negligible. The economic costs of terrorism have skyrocketed, but demand for terrorism coverage has remained relatively flat. And despite a proliferation of catastrophe bonds and other forms of alternative capital flooding into the property insurance market, relatively little terrorism risk has been transferred to the capital markets. If terrorism insurance – and the insurers who provide it – are to remain relevant, they must embrace the new tools and data available to them to create more relevant products, more innovative coverages, and new risk transfer mechanisms that address today’s threat landscape.
The September 11th, 2001 attacks rank among the largest insurance losses in history at $44 billion, putting it among catastrophes with severe losses such as Hurricane Katrina ($70 billion), the Tohoku earthquake and tsunami ($38 billion), and Hurricane Andrew ($25 billion).
But unlike natural catastrophes, whose damages span hundreds of kilometers, most of the 9/11 damages in New York were concentrated in an area of just 16 acres. Such extreme concentration of loss caused a crisis in the insurance marketplace and highlighted the difficulty of insuring against such a peril.
Following the events of the September 11 attacks, most insurers subsequently excluded terrorism from their policies, forcing the U.S. government to step in and provide a backstop through the Terrorism Risk and Insurance Act (2002). Terrorism insurance has become cost effective as insurer capacity for terrorism risk increased. Today there are an estimated 40 insurers providing it on a stand-alone basis, and it is bundled with standard property insurance contracts by many others.
But despite better data on threat groups, more sophisticated terrorism modeling tools, and increased transparency into the counter-terrorism environment, terrorism insurance hasn’t changed all that much in the past 15 years. The contractual coverage is the same – usually distinguishing between conventional and CBRN (chemical, biological, radiological, and nuclear) attacks. And terrorism insurance take-up remains minimal where attacks occur most frequently, in the middle east and Africa, highlighting what policymakers refer to as an increasing “protection gap.”
Closing this gap – through new products, coverages, and risk transfer schemes – will enable greater resilience following an attack and promote a more comprehensive understanding of the global terrorism risk landscape.
Natural hazard science is commonly studied at college, and to some level in the insurance industry’s further education and training courses. But this is not the case with terrorism risk. Even if insurance professionals learn about terrorism in the course of their daily business, as they move into other positions, their successors may begin with hardly any technical familiarity with terrorism risk. It is not surprising therefore that, even fifteen years after 9/11, knowledge and understanding of terrorism insurance risk modeling across the industry is still relatively low.
There is no shortage of literature on terrorism, but much has a qualitative geopolitical and international relations focus, and little is directly relevant to terrorism insurance underwriting or risk management.
As a step towards redressing the imbalance in available terrorism literature, a new online journal, The Journal of Terrorism and Cyber Insurance, has been established; its launch is to coincide with the fifteenth anniversary of 9/11. The journal has been welcomed and supported by global terrorism insurance pools, and its launch will be publicized at the annual terrorism pools congress in Canberra, Australia, on October 7, 2016.
Originally conceived as a journal of terrorism insurance, coverage has been extended to include cyber risk, recognizing the increasing insurance industry concerns over cyber terrorism and the burgeoning insurance market in cyber risk. The aim of the open access journal is to raise the industry’s level of knowledge and understanding of terrorism risk. By increasing information transparency for this subject the editorial board hopes to facilitate the growth of the terrorism insurance market, which serves the risk management requirements of the wider international community. The first issue is a solid step in this direction, and will include articles on the ISIS attacks in Paris in November 2015; terrorism insurance in France and Australia; parametric terrorism insurance triggers; non-conventional threats; the clean-up costs of anthrax, and the terrorist use of drones.
The four founding editors of the journal have extensive knowledge of the field. The managing editor is Rachel Anne Carter, who has terrorism insurance administrative experience with both OECD and U.K. Pool Re. Dr. Raveem Ismail, specialty terrorism underwriter at Ariel Re, brings to the editorial board detailed direct terrorism and political risk underwriting knowledge. Padraig Belton is a writer with extensive political risk expertise, having served as a correspondent in the Middle East and Pakistan. As chief architect of the RMS terrorism model, I will bring terrorism risk modeling expertise to the team and have the responsibility and pleasure to review all article submissions. I look forward to sharing insights from the journal with subscribers to this blog.
This month saw what the President of the United States described as “the most deadly shooting in American history” with the killing of 49 innocent people at an Orlando nightclub, carried out by a man suspected of having leanings towards radical Islamist ideology.
Although information is still emerging, there are some clear threads and patterns, which link this attack to the increasing activity surrounding so-called Islamic State (IS).
1. Assaults Using an Automatic Rifle Becoming More Common
For somebody committed to terrorizing the population, there appears to be a growing tendency to use automatic weapons. Off-the-shelf military weapons are inherently more reliable than improvised explosive devices. In contrast to the atrocity in Orlando, a 2007 plot against the Tiger Tiger nightclub in London failed because the IED (improvised explosive device) failed to detonate.
2. The Increase in “Lone Wolf” Attacks as a Response to Surveillance
A “lone wolf” attack has been defined as a single individual or a group of two to three people driven to hateful actions based on a particular set of beliefs without a larger group’s knowledge or support. The FBI believes that most U.S. domestic attacks are carried out by lone actors to promote their own grievances and agendas.
Militants involved in such attacks are home-grown “self-starters” that are inspired by the jihadi movement, but may have little or no actual connection to these groups. Instead, many use the internet and social networking tools to find propaganda and research attack methods.
Mass interception of communications (as revealed by Edward Snowden’s leaks of National Security Agency files), particularly in North America, has raised the chances of terrorist conspiracies being detected. This has led to a move away from plots involving multiple attackers. There has been a corresponding rise in the United States in the risk of lone-actor attacks, which have a comparatively small chance of being found out and stopped.
3. Attacks Inspired by Islamic State
The Orlando terrorist contacted police via cellphone around the time of the attack to announce his allegiance to IS. There are strong indications that he has been deeply influenced by the group even if he had no contact with it. As IS concedes territory it controls in Iraq and Syria it is looking to organize or inspire atrocities overseas. There are two likely reasons for this. Firstly, striking on foreign soil helps to divert attention from its losses in the Middle East in order to retain credibility and an aura of potency. Second, the jihadi operations overseas are designed to deter further attacks by Western forces in IS strongholds in Iraq and Syria.
4. Targeting of Venues Which Extremists Claim Symbolize Values They Decry
Bars and nightclubs may feature in the attack plans of terrorist organizations because there are high concentrations of people in a public, accessible venue. Such locations are also targets for such extremists who may view them as representing Western lifestyles of which they disapprove.
5. Increased Attacks over Ramadan
The murders in Orlando happened a week after the start of the holy month of Ramadan. Radical Islamic militants tend to increase their operations during this period. A recording released online from IS spokesman Abu Mohammed al-Adnani has claimed any martyrdom operation during the festival of Ramadan will bring more “rewards.” An increase in the tempo of Islamist terrorist activity would thus not be unexpected.
The increasing proliferation of extremism and global attacks is concerning. Our modeling team closely monitors the evolving risk landscape. By examining all attacks to capture greater insight into the workings and thinking of the terrorist groups, including targeting preferences and weapon selection, we can continue to offer terrorism models that enable our clients to deepen their understanding of terrorism risk and strengthen their terrorism risk management.
This post was co-authored by Weimeng Yeo and Gordon Woo.
If you are a risk professional that always wants to discover what’s new in our industry, then I’m sure you’d be interested in learning about our new developments: the first RMS high-definition (HD) models, managing novel perils such as cyber, and a total re-examination of more established perils, such as marine cargo.
You can satisfy this craving for the latest thinking, products, and solutions by joining us at Exceedance in Miami this May. With more than sixty sessions plus our general sessions and keynotes, here’s just a selection of the new developments we’ll be covering:
Explore high-definition (HD) modeling
There is a lot of excitement around HD models, representing our next generation of RMS probabilistic modeling, with full-simulation models incorporating the latest technology across all modeling components. You will be among the first to discover our new HD models at Exceedance, with HD modeling powered by RMS(one) for Europe Flood, Japan Typhoon, and New Zealand Earthquake.
It’s not just the models themselves that we will examine; we’ll also look at business-use cases for all RMS HD model components and analytics, from data to maps, and our Model Evaluation Environment, through to portfolio management with RMS(one).
New opportunities from new perils and new models
New perils are always fascinating as they offer growth for those who can harness their potential. To give us all a head start and increase understanding, we have called in leading experts in cyber and terrorism for Exceedance to discuss the latest insights for both these high-profile perils.
While cyber continues to be a serious business threat, (re)insurers’ cautiousness around the systemic nature of the risk sees cyber insurance demand outstripping supply. Matt Olsen, president of IronNet, will give context on the cyber crime environment, with the RMS Cyber Risk team explaining how to assess cyber threat and manage risk accumulations with our new Cyber Accumulation Management System.
Respected terrorism expert Bruce Hoffman will offer his view of a world where extremism is on the rise, as we also show the similarities and differences between modeling a human-made peril compared to traditional natural catastrophe modeling concepts and practices.
Finally, with the sheer scale of global trade seeing accumulations of billions of dollars of cargo at global ports, a new approach to modeling marine cargo insurance is needed. We’ll show examples of sample modeled losses using our new RMS Cargo and Specie Model, explain how to manage a global cargo portfolio, and tackle accumulations in prime risk areas such as ports.
I hope you can join us at Exceedance.