that the task of the risk analyst is to assess
the likelihood of an event occurring, not
to predict or prevent an attack.
Given the robust counter-terrorism ef-
forts in the West, RMS says the annual
volatility in terrorism losses involving
conventional weapons “is actually lower
than for natural hazards.”
RMS explains the probability of mul-
tiple severe nat cat events occurring in a
single year is “highly uncertain,” whereas
“the possibility of a wave of successful
terrorist attacks against the U.S. home-
land in a single year is extremely remote”
due to the counter-terrorism response
that would follow any successful attack.
The white paper frequently compares
and contrasts terrorism risk and natural
catastrophes. On one hand, RMS says the
financial risk of terrorism is comparable
to that of nat cats, noting that return periods commonly used in the reinsurance
industry for severe winter storms and
convective storms, such as 1-in100, 250
and 500 years, can also apply to terrorism. “At longer return periods, financial
impacts can be comparable with earthquakes and hurricanes,” RMS explains.
But terrorism and national catastrophes
differ when looking at a given level of risk
with respect to rare events with extremely
high severity. “Many natural catastrophes
occur with relatively high frequency, the
range of possible damages are better un-
derstood and insurance companies can
more accurately underwrite their loss po-
tential,” RMS says. “Successful large-scale
terrorist attacks, however, are events that
may only occur once a generation or less.”
The most severe attacks, involving nu-
clear, chemical biological or radiological
attacks (NCBR), “may cause hundreds of
billions of dollars of damage, but have an
extremely low frequency attached.
Additionally, RMS notes that a nat cat
will occur over a widespread area. During Hurricane Katrina, for example, every
county in Mississippi and Louisiana, 22
counties in Alabama and 11 in Florida were
declared federal disaster areas. During a
terrorist attack, the damage is concentrated
and may be measured in square yards.
Chris Folkman, terrorism risk expert
at RMS, tells PC360 that, because it can
be modeled, terrorism can, in fact, be
effectively priced, and he says a number
Terrorism remains a difficult risk to insure, but, contrary to the views of some, it can be modeled by measuring the
likelihood of an attack against vigorous
counter-terrorism efforts employed by
Western nations, according to a Risk Management Solutions white paper meant to
inform stakeholders as they debate a Terrorism Risk Insurance Act extension.
In fact, the white paper argues that terrorism insurance itself is really insuring
against the failure of counterterrorism.
“The frequency of such failures is low because of concerted suppressive western
government counter-terrorism measures,
which are stepped up even further after
any successful act of terrorism,” RMS says.
The key to modeling the risk, RMS says,
is to model terrorist activity at a strategic
level, rather than a tactical one. “Dealing
with terrorist operations at a tactical level
is a task for government officials, not risk-modeling agencies,” RMS notes.
For its part, RMS says it models the risk
as a “control process by which terrorist
operations are countered by security and
intelligence services.” The modeler adds
RMS: Terrorism Risk Can Be Modeled;
Insuring It Remains Difficult
By Phil Gusman, PropertyCasualty360.com
Terrorism | p. 10
the worst-ever recorded hail event costing $26 billion in claims in 2011. Two-thirds of the U.S. experiences at least one
hailstorm annually, and 44% of the country gets hit by two to three in one year.
Historically, says the report, roofing-related building codes have been primarily concerned with fire resistance and
the structural loading of snow, wind and
drainage, while the impact of hail resistance is not much of a concern. Furthermore, the International Building Code
(IBC) does not require roofing materials
to be impact-proof. However, the report
found that homes with impact-resistant
asphalt shingle roofs were 40 to 60 percent less likely to have a loss claim.