Will a Clearer Picture Emerge for Terrorism Insurers?
Chris FolkmanMay 26, 2017
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.
The subsequent attack in Manchester was such a sobering reminder that despite all the great advancements in counterterrorism, plots such as these may occasionally go undetected. As hard as it is to comprehend the human impact of such an attack, we should not lose heart; counterterrorism efforts are robust, and through better data and significant advancements in modeling, it is now easier to quantify the risk than ever before.
At the first seminar in London, we welcomed Richard Walton, director at consultancy firm Counter Terrorism Global who examined counterterrorism strategies currently being adopted by the United Kingdom compared to Continental Europe. As the tragic events in Manchester will attest, no strategy is perfect. Some plots do become successful terrorist attacks. Nevertheless, Walton gave praise to the U.K. in its counterterror approach, outlining that many of the key blocks of an effective strategy were in place. Two days after the Manchester attack, the British Home Secretary, Amber Rudd said “Our intelligence services do a remarkable job. They have foiled 13 plots since 2013.”
According to Walton, with strong international cooperation, support from local communities, and effective inter-agency working between police and intelligence agencies, the U.K. was seeing an overall reduction in successful large-scale terror plots. Continental Europe was slightly more hindered in its counterterror efforts due to its porous borders, wider gun availability, silos between agencies and less community engagement. RMS research supports Walton’s view; although the terrorism threat remains high, across the world the frequency of large scale attacks has subsided.
Changing Modus Operandi
With terror groups finding it ever more difficult to plan larger terror events, Walton says that the strategy has changed to the style of attacks recently experienced in Europe.
These attacks have involved single perpetrators looking to maximize their impact and casualties, using low cost “everyday” weaponry such as cars and even knives. Dr. Gordon Woo from RMS added that these single perpetrators, as RMS modeling shows, hover under the counterterror radar – they are almost three times less likely to be interdicted than a group of seven to ten operatives. As well as maximizing casualties, they prefer to target busy, high profile sites in large cities that also garners a vital product of any terrorist activity – extensive media coverage.
What we saw in Manchester may represent a shift towards a higher level of sophistication and coordination, as the media reports the bomber could have been assisted. Although the device used in Manchester may have required some skill to put together, by all accounts it was still an improvised explosive device (IED) which fits into the pattern of events seen in Europe.
Widening the Recruitment Pool
The threat environment remains fluid as RMS research shows that terrorist activity relating to Syria and Iraq to target the West has delivered a frequent flow of attacks, and 59 percent of these plots, as was the case with Manchester, were homegrown. Between 2013-16, Syria/Iraq related activity generated 92 plots, with 38 attacks and 9 failed attacks; 67 percent originated from nationals of the targeted country.
Principally, these homegrown plots are usually amateur efforts using low-tech weaponry. Although the majority of the plots fail, on the odd occasion a homegrown attacker through fluke or circumstances, can create significant carnage, as was the case in the Bastille Day attack in Nice, France, and in the tragic Pulse nightclub shooting in Orlando, Florida.
But a new aspect of terrorist recruitment was illustrated by Professor Rohan Gunaratna, from the International Centre for Political Violence and Terrorism Research at Nanyang Technological University. Professor Gunaratna stated that I.S. recruitment has been successful across the socioeconomic spectrum – some of their key messages are showing to resonate with both rich and poor, both educated and uneducated. This is significantly different than previous recruitment efforts of other terrorist organizations.
Where Does the Larger Risks Lie?
The larger risks are still around the uncertainty in attack loss outcome from attacks such as CBRN (chemical, biological, radiological, and nuclear), but the risk has generally become easier to understand and model. These kinds of events are not random, they require substantial funding, the logistical burdens are high and the targeting preferences are constrained.
Naturally, areas of high risk also have high exposure; 77 percent of expected loss in the U.S. comes from five metropolitan areas; worldwide – capital cities represent a substantial proportion of the expected loss. But, the terrorism insurance market is well supported and affordable, with 40 or more writers of standalone terrorism insurance worldwide, offering $3-4 billion in capacity, and in many countries backstopped by government pools. Terrorism insurance coverages have also evolved, adapting to today’s risk landscape with a greater focus on business interruption, non-physical event coverages such as loss of attraction and evacuation expense, and entirely new products such as active shooter cover.
Understanding the Risk
Tragic events such as Manchester remind us that terrorism is an ever-present threat that continues to evolve, but as risk professionals there is an opportunity to raise the bar in modeling and measuring the risk. Over the last ten years, the data to model terrorism has greatly improved, on attacks, threat groups, countersecurity measures, and targeting preferences.
The depth of knowledge available has increased substantially. RMS uses a catalog of over 140,000 historical attacks to parameterize the models, as well as knowledge on hundreds of large-scale plots, dozens of threat groups, and detail on counter-terrorism activity. Now, rather than just examining a location’s absolute risk, data on relative likelihood of an attack – type of business, type of weapon, and susceptibility to a type of attack can be explored. As the threat evolves, the terror risk community will continue to benefit from tools and data to get closer to understanding the risk.
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Chris Folkman is a senior director of product management at RMS, where he is responsible for specialty lines including terrorism, casualty, wildfire, marine cargo, industrial facilities, and builders' risk. He has extensive experience on both the broker and carrier sides of insurance, where he has led many aspects of property and casualty operations including underwriting, pricing, predictive analytics, regulatory affairs, and third-party commercial coverage and claims.
Prior to RMS, he was a managing director at CompWest Insurance Company, a workers’ compensation start-up that was acquired by Blue Cross Blue Shield of Michigan. Chris holds a bachelor's degree from Stanford University. He is a licensed insurance broker and a Chartered Property and Casualty Underwriter (CPCU).