Category Archives: Terrorism Risk

Germanwings 9525: Why didn’t this happen before?

On the tenth anniversary of 9/11, I attended a commemorative meeting at the British Academy in London. A professor of international relations recounted how he watched the horrific scenes of destruction of the World Trade Center in the company of his five year-old daughter. She posed this intriguing question: why didn’t this happen before?

Just a few years before she was born, in December 1994, Algerian terrorists attempted to fly a hijacked plane into the Eiffel Tower. Fortunately, French commandos terminated the hijacking when the plane stopped for refueling. This was a near-miss. The American writer of counterfactual fiction, Philip Roth, observed in his book The Plot Against America that: “the terror of the unforeseen is what the science of history hides.” The destruction of the Eiffel Tower is not an event in terrorism history—just one of numerous ambitious plots that were foiled.

With the current state of historical and scientific knowledge, there are very few unknown hazard events that should take catastrophe risk analysts by surprise. Almost all either did happen before in some guise, or, taking a counterfactual view, might well have happened before. Take for example the great Japanese tsunami and magnitude 9 earthquake of four years ago. It is doubtful that this was the strongest historical earthquake to have struck Japan. The Sanriku Earthquake of 869 may merit this status, based on archaeological evidence of widespread tsunami deposits.

Disasters are rare, and preparedness depends crucially on knowledge of the past. Aviation is the safest mode of travel; there are very few crashes. However there are numerous near-misses, where one or more of the key flight parameters is dangerously close to the disaster threshold. There is a valuable learning curve associated with the lessons gained from such operational experience.

The direct action of the co-pilot in the tragic crash of Germanwings Flight 9525 on March 24, 2015 raises again the question: why didn’t this happen before? As recently as November 29, 2013, it did. A Mozambique Airlines plane flying from the Mozambican capital Maputo to Luanda in Angola crashed, killing 27 passengers and its six crew. The pilot locked himself in the cockpit keeping out the co-pilot. He ignored alarm signals and manually changed altitude levels.

Quite apart from this and other historical precedents for fatal crashes caused by direct pilot action, there must be many more near-misses, where timely intervention has inhibited direct action by pilots suffering from some psychological disorder. The reporting of incidents is a crucial part of aviation safety culture, so is advancing the learning curve. Analysis of such data would contribute to accident risk assessment and subsequent risk mitigation measures.

The 2015 U.K. Budget and Terrorism Insurance

On 18 March, the Chancellor of the Exchequer, George Osborne, delivered his pre-election budget. Billions of further public spending cuts are needed. Several weeks earlier, Pool Re, the U.K. terrorism insurance pool, announced its first ever purchase of reinsurance in the commercial market.

These two announcements are not unconnected.

Pool Re was set up in 1993, after the IRA bombing of the Baltic Exchange in 1992. Since the pool was established, it has built up quite a substantial surplus; claims have been low thanks to the vigilance of the security and intelligence services. Almost all the major plots since the September 11, 2001 attack have been foiled.

Terrorism insurance is effectively insurance against counter-terrorism failure, and the huge sums spent on blanket indiscriminate surveillance have helped to minimize terrorism insurance losses. The low level of losses is not coincidental, or due to some unpredictable whim of terrorist behavior but readily explainable; too many terrorists spoil the plot. The type of plots capable of causing terrorism insurance losses of a billion pounds or more would involve a sizeable number of operatives.

As the NSA whistleblower Edward Snowden has revealed, the level of surveillance of electronic communications is so intensive that sizeable terrorist social networks end up being tracked by NSA and GCHQ. Lesser plots involving lone wolves or several operatives are most likely to be successful. A string of these have struck the western alliance over the past months in Ottawa, Sydney, Paris, and Copenhagen. Besides causing terror, these have attracted global media publicity, inspiring Jihadi recruitment. But terrorism insurance covers property loss, not the spread of fear or growth in the ranks of Islamic State.

Having developed a tough security environment, it is unsurprising that the U.K. Government should be questioning its continuing exposure to terrorism insurance risk. This is an age of austerity. Pool Re’s three year program provides £1.8bn of reinsurance cover, so diminishing this exposure. More cover might have been purchased, but this was the market limit, given that Chemical-Biological-Radiological-Nuclear (CBRN) risks were included.

The idea of separating out extreme CBRN terrorism risks was considered in Washington by the House Financial Services Committee in the discussions last year over the renewal of the Terrorism Risk Insurance Act. The objective was to provide a federal safety net for such extreme risks, whilst encouraging further private sector solutions for conventional terrorist attacks. This idea was considered at some length, but was a step too far for this TRIA renewal. It might be a step for Pool Re.

The modus operandi of the IRA was to avoid killing civilians. This would alienate their Catholic community support. Bomb warnings, genuine and hoax, were often given. Thus the metric of IRA attacks was typically physical destruction and economic loss. Islamist militants of all persuasions have no such qualms about killing civilians. Indeed, gruesome killings are celebrated. Terrorists follow the path of least resistance in their actions. For Islamic State, this is the path of brutal murder rather than property damage.

Paris in the Winter: Assessing Terrorism Risk after Charlie Hebdo

By Gordon Woo, catastrophe risk expert

My neighbor on the RER B train in Paris pressed the emergency button in the carriage. He spoke some words of alarm to me in French, pointing to a motionless passenger in the carriage. I left the train when the railway police came. A squad of heavily armed gendarmes marched along the platform and within minutes the Châtelet-les Halles station, the largest underground station in the world, was evacuated out of precaution due to the motionless passenger.

This was no ordinary event on the Paris subway, but then this was no ordinary day. “Je Suis Charlie” signs were everywhere. This was Saturday, January 10, the evening after two suspects were gunned down after the terrorist attack against the Charlie Hebdo offices on January 7, the most serious terrorist attack on French soil in more than forty years and the reason for my visit to Paris.

By Olivier Ortelpa from Paris, France (#jesuischarlie) [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

Fortunately, as a catastrophist, I knew my terrorism history when the emergency arose in my carriage. I always tell my audiences that understanding terrorism—and particularly frequency—is important for personal security, in addition to providing the basis for terrorism insurance risk modeling.

There is a common misconception that terrorism frequency is fundamentally unknowable. This would be true if terrorists could attack at will, which is the situation in countries where the security and intelligence services are ineffective or corrupt. However, this is not the case for many countries, including those in North America, Western Europe, and Australia. As revealed by whistleblower Edward Snowden, counter-terrorism surveillance is massive and indiscriminate; petabytes of internet traffic are swept up in search for the vaguest clues of terrorist conspiracy.

RMS has developed an innovative empirical method for calculating the frequency of significant (“macro-terror”) attacks, rather than relying solely on the subjective views of terrorism experts. This method is based on the fact that the great majority of significant terrorist plots are interdicted by western counter-terrorism forces. Of those that slip through the surveillance net, a proportion will fail through technical malfunction. This leaves just a few major plots where the terrorists can move towards their targets unhindered, and attack successfully.

Judicial courtroom data is available in the public domain for this frequency analysis. Genuine plots result in the arrest of terrorist suspects, indictment, and court conviction. If the evidence is insufficient to arrest, indict, and convict, then the suspects cannot be termed terrorists. Intelligence agencies may hear confidential chatter about possible conspiracies, or receive information via interrogation or from an informant, but this may be no more indicative of a terrorist plot than an Atlantic depression is of a European windstorm. As substantiation of this, there are no plots unknown to RMS in the book of Al Qaeda plots authored by Mitch Silber, director of intelligence analysis at the NYPD.

Since 9/11, there have been only four successful macro-terror plots against western nations: Madrid in 2004, London in 2005, Boston in 2013, and now Paris in 2015. Terrorism insurance is essentially insurance against failure of counter-terrorism. With just four failures in North America and Western Europe in the thirteen years since 9/11, the volatility in the frequency of terrorism attacks is lower than for natural hazards. Like earthquakes and windstorms, terrorism frequency can be understood and modeled. Unlike earthquakes and windstorms, terrorism frequency can be controlled.

My new report, “Understanding the Principles of Terrorism Risk Modeling from the ‘Charlie Hebdo’ Attacks in Paris,” uses the recent Charlie Hebdo attacks as a case study to explain principles of terrorism modeling. And, I will speaking in a webinar hosted by RMS on Wednesday, January 28 at 8am ET on “Terrorism Threats and Risk in 2015 and Beyond.”

Terrorism Modeling 101

Acts of terror can result in wide ranges of potential damage and the financial repercussions can threaten an insurer’s solvency.

Terrorism risk can be modeled probabilistically with an increasing degree of confidence. Its damages at long return periods are comparable to natural disasters such as hurricanes and earthquakes.

The events of September 11, 2001 resulted in insurable damages in excess of $44 billion, causing insurers to explicitly exclude terrorism from standard property policies. This resulted in the downgrade of billions in mortgage securities, and the costly delay of many important development, construction, and infrastructure projects.

The Terrorism Risk Insurance Act (TRIA)

To address the terrorism insurance shortage, the Terrorism Risk Insurance Act (TRIA) was signed into law by President George W. Bush in 2002, creating a $100 billion federal backstop for insurance claims related to acts of terrorism.

Originally set to expire December 31, 2005, it was extended for two years in December 2005, and again in 2007. The current extension, entitled the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA), will expire on December 31, 2014 and its renewal is up for debate in Congress.

Insuring Against Terrorism

Just as with natural catastrophe risk, insurers rely on catastrophe models to underwrite and price terrorism risk.

Terrorism threat is a function of intent, capabilities, and counter-terrorism action; counter-terrorism factors have an impact on frequency, multiplicity, attack type, and targeting of terrorist actions, as well mitigation of loss. It’s not just what the terrorists can do that controls the outcome; it’s what governments can do to counteract their efforts.

RMS was first-to-market with a probabilistic terrorism model and has been providing solutions to model and manage terrorism risk since 2002. The RMS Probabilistic Terrorism Model takes a quantitative view of risk, meaning it uses mathematical methods from game theory, operational research, and social network analysis to inform its view of frequency. Its development involved the input of an extensive team of highly qualified advisors, all of which are authorities in their field of assessing terrorism threats.

The Probabilistic Terrorism Model is made up of four components:

  • The potential targets (comprised of landmark properties in major cities) and associated attack mode combinations (both conventional and CBRN – chemical biological, radiological, and nuclear), knowing that not every target is susceptible to all types of attack modes.
  • The relative likelihood of an attack, taking into account the target and type of attack. For example, attacks using conventional bombs are easier to plan for and execute than anthrax releases; locations having high symbolic or economic importance are much more likely to be targeted.
  • The relative likelihood of multiple attacks making up a single event. For example, a hallmark of many terrorist operations is to attack two or more targets simultaneously. Attack multiplicity modeling is derived based on terrorist groups’ ability to coordinate multiple attacks for a particular weapon type.
  • Event frequency, which is empirically-driven and determined by modeling three input parameters: the number of attempted events in a year, the distribution of success rate of attempted events, and a suppression factor that is based on government response to an event.

The RMS terrorism model’s damage module has been validated against historical terrorism events. All known terrorist plots or attacks that have occurred since the model’s launch have been consistent with our underlying modeling principles. There are blue ocean opportunities for those willing to understand terrorism risk and underwrite it accordingly.

To read more, click here to download “Terrorism Insurance & Risk Management in 2015: Five Critical Questions.”

Western Jihadists and the Risk They Pose to Their Homeland

Since the start of the Syrian civil war in 2011, foreign jihadists from across the globe have travelled to Syria to fight the Assad regime. According to a report by the 9/11 commission, the civil war in Syria has attracted around 10,000 foreign fighters from more than 80 countries. A growing number of these foreign fighter contingents have also returned to Iraq determined to reignite sectarian tension in the region. While the majority of non-Syrian fighters are Middle Eastern, the influx of European, American, and Canadian born fighters is significant. A study done by the International Centre for the Study of Radicalisation at King’s College London on the number of foreign fighters in Syria found that 18% are from the West. Britons make up one of the biggest groups of Western fighters with Danes, Italians, and French not far behind.

The news that American Douglas McCain was killed while fighting in Syria also indicates that there are Americans currently in Syria fighting against the Assad regime. In February this year, Director of National Intelligence James Clapper told the US Congress that more than 50 Americans are thought to be fighting in Syria. Canada has also seen a rise in homegrown jihadists going overseas to fight. According to a report done by the Public Safety Canada, an estimated 130 Canadians have joined overseas conflicts, many of them gravitating toward Syria and Iraq to wage jihad. The influx of overseas jihadists is unprecedented. The figures exceed the number of foreign jihadists involved in Afghanistan during its decade of war and its subsequent violent aftermath. Unlike in Afghanistan, many are travelling overseas not to just train or provide financial logistical support, but to also participate in the conflict directly.

There are many reasons why so many individuals have traveled to Iraq and Syria to wage jihad. Many have been drawn in by predictions in a version of Islamic ideology that the apocalypse will take place in Greater Syria. Such narrative has been inflamed by stories of atrocities against Sunni Muslims alleged to be committed by the Alawite Assad regime.

Accessibility is also a factor. In contrast to other jihadi theaters such as in Afghanistan, Mali, and Somalia, Iraq and Syria are much more logistically accessible. Europol reports that many foreign jihadists have traveled through Turkey, a common vacation destination, which arouses no or limited suspicion. Most of the foreign jihadists have been assimilated to ISIL, also referred to as ISIS (Islamic State of Iraq and Syria), but not exclusively. Some have joined other salafi-jihadi rebel groups such as the Jabhat al-Nusra and Ahrar al-Sham.

These groups were founded by individuals who at one time were senior members of al-Qaida. They tend to be more inclusive, highly organized, and much better financed than their more moderate counterparts such as the Free Syrian Army (FSA). The foreign fighters are not only getting indoctrinated ideologically, but are also given training on operational tactics. Many are instructed in using improvised explosive devices (IEDs), car bombs, and suicide attacks.

From a threat perspective, foreign jihadi involvement in both Iraq and Syria could impact the global terrorism risk landscape in multiple ways. First, the returning jihadis potentially could revitalize their cause in their homeland and act as a conduit reconnecting local groups to the global jihad. Second and more importantly, there is also a risk that some of these veterans may attempt a terrorist attacks back in their homeland. While the majority of jihadist foreign fighters do not end up attacking their home countries, a small number do and they often prove more capable and proficient than those without any fighting experience.

Given the stronger counter terrorism environment in the West, such attacks will more likely fall under the category of lone wolf terrorism attacks. These are individuals who work alone or in very small groups and do not seek any type of external assistance to execute their operation thus making it difficult for the authorities to gather enough intelligence to thwart any potential attack. Returning jihadists with proficiency in the local language and the ability to understand Western society can execute and plan their terrorism plot without raising much suspicion. While these homegrown lone wolf plots are much harder to detect and stop, their attacks tend to be limited to smaller attack types.

Current counter-terrorism practitioners assert that ISIS and its foreign contingent are interested in attacking western cities but question whether they have the ability to orchestrate a large-scale attack such a car bomb in cities such as in Toronto or London given the strong counter terrorism environment in these cities. Thus, it appears lone wolf attacks such as assassinations, beheadings, and kidnappings are the more likely scenarios. Despite these changes in the global terrorism landscape, RMS continues to recommend clients to use the standard risk outlook for its suite of probabilistic terrorism models.

Managing the Changing Landscape of Terrorism Risk

RMS has released an updated version of its Probabilistic Terrorism Model, which reflects the considerable changes in terrorism risk for Canada, Denmark, Ireland, Italy, and the U.K. as well as the decreased frequency of large-scale-terrorism events for each of the five countries.

To inform the new view of risk, our scientists carried out a comprehensive analysis of global attack and plot data from the past decade. We focused heavily on large-scale attacks – those with the potential to threaten the solvency of an insurer.

The analysis showed that incidents of large-scale attacks have steadily and significantly decreased, which corresponds with a rise in the funding and sophistication of major intelligence agencies in the west.

Our approach to terrorism modeling follows three principles, which have been validated by data on intercepted plots, past successful attacks, and recent intelligence leaks:

  • Effective terrorists seek to achieve optimal results relative to their effort
  • Their actions are highly rational
  • They are highly constrained by pervasive counter-terrorism measures

Of the estimated 200,000 documents taken or leaked by Edward Snowden, one of the most relevant validations of the RMS model is an N.S.A. presentation that explains the routing of international telecommunications traffic. A very significant proportion of international telecommunications traffic is routed through the U.S. and Europe which, coupled with advances in big data analytics and plummeting data storage costs, has made intelligence collection easier and more robust than it has ever been.

 an N.S.A. PRISM presentation explains the routing of international telecommunications traffic

According to available data on the frequency of plots and attacks, the risk of a large-scale attack has been in decline since 2007, but the risk of smaller-scale attacks perpetrated by lone-wolf operatives and homegrown militants remains high.

However, we have learned over the past decade that terrorism risk levels are fluid and can change quickly. With the rise of the Islamic State in Iraq and reports of its successful recruitment of foreigners, as well as ongoing instability in Afghanistan and Pakistan, the risk outlook can change at any moment.

The RMS Probabilistic Terrorism Model incorporates multiple risk outlooks to provide users with the agility to quickly respond to any changes in terrorism risk. RMS is committed to updating its terrorism model as frequently as necessary to provide the most up-to-date, granular, and accurate view of global terrorism risk.

Dueling Agendas on TRIA

On Thursday, July 17, the Senate passed a reauthorization of TRIA, the Terrorism Risk and Insurance Act, extending the bill for seven years after its expiration at the end of 2014. The bill was passed with a 93-4 vote and made minor modifications to the expiring legislation. This is a promising sign for the insurance industry, which has been lobbying vigorously for a renewal since last year. But before the bill becomes law, there is certain to be opposition from influential members of Congress who favor more significant reductions to the federal government’s participation.

The Senate bill reduces TRIA’s coverage in two key ways: by increasing the industry co-pay from 15% to 20% over a five year period, and by pushing the Federal Government’s “mandatory recoupment” responsibility from $27.5 billion to $37.5 billion. By contrast, a competing bill proposed by Congress calls for even more substantial modifications, most notably raising the program trigger from $100 million to $500 million for all acts of terrorism except those arising from CBRN (chemical, biological, radiological, and nuclear) events.

How the two bills are reconciled will have significant implications for the insurance industry, as any reduction in federal participation will amount to additional risk assumed by insurance carriers. However, property insurers today are more willing to take on terrorism risk that they would have previously excluded, as evidenced by the dramatic drop in terrorism insurance prices over the past decade. A recent study by the Wharton Center for Risk Management downplayed the impact of TRIA changes, noting that while the changes could increase the price of coverage, “firms’ demand for terrorism insurance is not very sensitive to gradual price changes under current market conditions.”

Whatever the case, the ultimate outcome of the TRIA will have a measurable impact on the price and availability of terrorism insurance, primary carriers’ risk appetites in urban areas, and the securitization of terrorism risk, which my colleague Gordon Woo recently wrote about. The U.S. has made great strides in the capability of its counterterrorism operations over the past decade, but even with these gains, insurers and reinsurers must continue managing their pricing, underwriting, and capital deployment strategies to address the risk of future catastrophic acts of terror.

RMS and the FIFA World Cup: Insuring Against Terrorism

As we reflect back on this year’s World Cup, which wrapped up without interruption after Germany’s victory on Sunday, it is clear that FIFA’s financial position is much stronger now than in 2006, due in part to the availability of terrorism insurance.

Eleven years ago, the global elite of the soccer world learned about innovative RMS risk analysis to help FIFA to prepare for the 2006 World Cup in Germany. Sponsorship money was essential for FIFA’s cash flow and sponsors insisted on having insurance coverage against event cancellation. After 9/11, terrorism insurance became a necessity, but was available only through Warren Buffet, the astute insurer of last resort, and was extremely expensive. So, FIFA pursued alternative risk transfer to the capital markets through a catastrophe bond.

FIFA’s bankers at Credit Suisse turned to RMS to do what had been thought impossible – to get a terrorism risk securitization rated. It took multiple RMS meetings with Moody’s in London and New York over the course of a year to present and discuss the unique terrorism risk analysis and eventually secure an investment grade rating for Golden Goal Finance Ltd. This $260 million deal remains to this day the only stand-alone securitization of terrorism risk. Prospects for further terrorism risk securitizations depend on the scope of the U.S. Terrorism Risk Insurance Act, which will be renewed at the end of 2014 with some further incremental reduction in the role of the federal government, but RMS was instrumental in instituting the precursors to these prospects.

Securitization of the cancellation risk of the 2006 World Cup was feasible in part due to the national importance of the event, which received extensive counter-terrorism protection.

While cancellation was still the biggest risk this year, the predominant local threat to the World Cup was disruption by public protest and riot. Following the start of the Arab Spring in 2011, there has been a surge of demand for international riot insurance, with a commensurate interest in riot analysis. As with terrorism, security is particularly crucial for the control of riot risk. With 170,000 Brazilian security personnel on duty for the month of the soccer tournament, insurers were able to enjoy the matches without concern that the July 13 final in Rio would be delayed.

While terrorism insurance is more widely available than in the past, it is still in short supply. Expanding modeling capabilities and increased demand for products such as terrorism and riot insurance will result in more insurance-linked securities (ILS) transactions such as the 2006 catastrophe bond, and ultimately promote a more resilient society.

Impending Terrorist Threat at Sochi Olympic Games?

The terrorist threat for the upcoming Sochi games is higher than any other games since I started tracking terrorist threats to the Olympics after 9/11. It’s almost certain there will be an attack attempted.

The attack could take place either inside of the cordon, where it’s already known that there are unaccounted black widows; or outside of the cordon on some of the other major cities outside Sochi itself.

RMS estimates terrorism risk based on attacks as well as plots. There has been a lot of activity on both the terrorism side and the counter-terrorism side prior to the games. The kind of analysis we do highlights the dependence of the attack on the number of people involved.

What’s concerning about Sochi is the certain style employed by Chechen separatists – namely the black widows. It’s known that several are unaccounted for in the Sochi area. Because they work on their own, it’s not possible to track them down based on their communication with other people. It’s very hard to stop an attack carried out by just one person.

It was President Putin’s decision to hold the games in Sochi, his favorite vacation destination, which makes it a bigger target for the Chechens who want to make a statement. Any attack on the games is a personal attack on the president. After the Volgograd bombings, he threatened to annihilate the terrorists responsible; he threw down the gauntlet and essentially invited a response. The Sochi Olympics are a huge honeypot target for the Chechen terrorists.

Although there were a number of threats to the London Olympic games, because of the work done by the MI5, there was no successful attack. These games are different due to the political climate and the proximity of Sochi to the Caucasus region. While the London Olympics had great attendance of world leaders, it’s likely that no Western leaders will be traveling to the Sochi games due to security concerns.

Putin obviously has confidence in his security services. There are more than a thousand security forces inside the ring of steel, but the threat is very high. The Olympics are a high value target, which is a real challenge for terrorists. But the terrorists are motivated.

Putin has made these games a much bigger target. The games should be politically neutral, but these are very much Putin’s games.

Everyone should be very vigilant. As a general principle, I believe people should live their lives as normal and not give into threat. Some advice for visitors: Get there as early as possible. Get inside the cordon and stay there until the end of the games. Threat to transportation will be at its highest right before and right after. If you get there a few days early, you likely won’t be exposed to the highest-level threat.

A Debate About The Numbers

Should TRIA, the Terrorism Risk Insurance Act, be renewed at the end of 2014?

It depends on who you ask. The insurance, real estate, and banking industries are lobbying forcefully for a renewal, citing the difficulty of providing adequate private capacity for terrorism insurance as well as its strong take-up rate (over 60%). On the other side of the debate, some think tanks and consumer advocacy groups believe TRIA should expire because it is an “unwarranted subsidy” that was never meant to be permanent.

Whatever the viewpoint, the debate over TRIA must be focused on the numbers:

  • the cost of terrorism risk
  • its impact on the insurance industry
  • the benefits of a renewal

Given the advances in risk modeling over the past decade, as well as the recently increased transparency into U.S. counter-terrorism operations, it is now possible to quantify terrorism risk with an ever-increasing degree of certainty.

RMS’ industry-leading terrorism model simulates over 90,000 large-scale terrorist attacks across 9,800 global targets using 35 different attack types. The attacks range from 600-pound car bombs to 10-ton truck bombs as well as chemical, biological, nuclear, and radiological attacks. Based on analyses using high-definition industry-wide exposure, the model results point to several key findings:

  • More than 75% of the nation’s expected annual loss from terrorist attacks is concentrated around high profile targets in just five urban areas where building value and population density is highest: New York, Chicago, Washington D.C., Los Angeles, and San Francisco.
  • The financial impacts of terrorist attacks are comparable with severe winter storms and convective storms including tornado, hail, and wind, at return periods commonly used in the reinsurance industry (100, 250, and 500-year return periods). At longer return periods, they are comparable with hurricanes and earthquakes.
  • Damage from attacks involving chemical, biological, nuclear, and radiological weapons is harder to estimate and far more severe than attacks involving conventional explosives. Several simulated attacks in RMS’ event catalog cause insured losses that approach the surplus level of the entire U.S. insurance industry.

The concentration of loss from a terrorist attack makes it extremely difficult to insure.

The September 11, 2001 attacks caused insured losses exceeding $40 billion, most of which occurred at the World Trade Center—an area of approximately 16 acres. This can be contrasted to Hurricane Katrina’s damage footprint, which spanned large swaths of Mississippi, Louisiana, and Florida. Insurance companies must geographically diversify their risk in order to manage the volatility of their losses; writing terrorism coverage makes this obligation difficult to achieve.

Terrorism risk can be thought of as a man-made peril, and it can be effectively modeled as a “control process”, whereby terrorists’ actions are constrained by counter-terrorism operations.

The recent revelations of Edward Snowden have revealed the pervasiveness of these operations. Just as flood insurance covers the breach of flood barriers, terrorism insurance covers the breach of the U.S. countersecurity infrastructure.

When deciding the fate of TRIA, policymakers should make use of the advances in terrorism modeling in order to best estimate the costs and benefits of terrorism legislation.

For more Information, please download the latest RMS Whitepaper, “Quantifying U.S. Terrorism Risk: Using Terrorism Risk Modeling to assess the costs and benefits of a TRIA renewal”.