Model Introduced at Seminar on Terrorism Risk
Attended by 250 RMS Insurance and Reinsurance Clients
NEW YORK, Sept. 18 /PRNewswire/ -- Risk Management Solutions (RMS), the
world's leading provider of products and services for the management of
catastrophe risk, today launched its U.S. Terrorism Risk model, a model
designed to assist property, workers compensation, and life insurers and
reinsurers in quantifying the risk from catastrophic terrorist attacks. The
model was developed with input from, and in collaboration with, experts in
terrorism, weapons systems, and security from the U.S. and around the world.
Advisors included representatives from the Centre for the Study of Terrorism
and Political Violence (CSTPV), University of St. Andrews; Jane's, a premier
provider of information and consulting services on defense, intelligence and
security issues; and RAND Public Safety and Justice. An expert-elicitation
with senior U.S. government officials from the CIA-sponsored Homeland Security
Forum was also instrumental in development of the model.
RMS announced the launch of the model at a seminar entitled "Understanding
and Managing Terrorism Risk" today in New York City. During the seminar,
moderated by Hemant Shah, President and CEO of RMS, senior members of the
development team, including key external advisors, presented the methodology
behind the Terrorism Risk model to approximately 250 of RMS' insurance and
reinsurance clients.
At the heart of the model is the application of Game Theory, an approach
popularized by the film "A Beautiful Mind," which suggests that the
likelihood, and targets, of a future al-Qaeda attack can be modeled by
understanding the operational and behavioral characteristics of the
terrorists' organization. Dr. Gordon Woo, the RMS mathematician who was the
architect of the RMS model, indicated "in a similar way to the flow of water,
which seeks the path of least resistance, the flow of al-Qaeda activity is
towards weapons and targets that present the lowest technical, logistical, and
security barriers to mission success."
At the same time, "one can safely predict that al-Qaeda will continue to
stage spectacular land, sea, and air attacks in the future, especially against
symbolic or high-profile targets," said Dr. Rohan Gunaratna, a Research Fellow
at St. Andrews CSTPV and author of "Inside Al Qaeda," who served as a key
advisor to the RMS development effort.
"Game Theory helps us model the implications of the complex dynamics
between these conflicting factors," explained Dr. Woo. "On one hand, we have
al-Qaeda's desire to maximize the Utility of their attacks, and on the other
hand, we have to consider their rational response to stepped-up security and
counter-intelligence efforts, and the constraints of their technological and
logistical capacities. A traditional probabilistic approach, such as used for
modeling natural catastrophes, is simply not up to the challenge."
By modeling these dynamics, RMS is able to recommend that insurers
prioritize their risk management initiatives around approximately 1,500
credible targets of a macro-terrorist attack across the United States. These
targets represent a mix of specifically identified high-profile structures,
facilities and landmarks, and central-business districts of significant cities
across the country.
The RMS model considers 16 attack modes on each of the targets, ranging
from conventional explosives and "improvised" weapons, to a plausible range of
chemical, biological, radiological, and nuclear scenarios. The possibility of
swarm attacks, where certain attack modes are launched simultaneously to
overwhelm a certain type of target before security has a chance to harden, is
but one example of the types of outputs that are generated. In addition to the
probability of various attacks, the model estimates the insured losses
stemming from property damage, business interruption, and human casualties.
It models, at very high resolution, all the principal agents of damage and
loss, including blast pressure, airborne and ground based contaminants, and
the impact of exclusion zones, for each attack mode.
RMS is advising its clients to use the model as part of a holistic risk
management strategy. "First and foremost, we recommend that our clients build
their risk management infrastructure on a foundation of data, data, and more
data. Insurers should track their exposures, across all lines of business,
location-by-location, and understand and mitigate undue concentration of
risk," said Mr. Shah. "In addition, our new terrorism model can add
significant value by helping to clarify and quantify the key drivers of risk,
and in doing so, guide a variety of underwriting, accumulation management, and
risk transfer decisions."
RMS published its first analysis of the terrorist attack on the World
Trade Center on September 18, 2001, one week following the attack. Since
then, RMS staff have published numerous white papers, commentaries, and
journal articles on modeling terrorism risk, and RMS has described its
approach at a dozen industry conferences and technical symposiums and
workshops. Several consulting engagements, using the elements of the newly
released terrorism model, have already been performed for insurance and
reinsurance clients.
About Risk Management Solutions
Risk Management Solutions is the world's leading provider of products and
services for catastrophe, weather, and enterprise risk management. More than
400 leading insurers, reinsurers, trading companies, and other financial
institutions rely on RMS models to quantify, manage, and transfer risk.
Founded at Stanford University in 1988, RMS serves clients today from offices
in the U.S., Europe, and Japan. For more information, visit our web site at
http://www.rms.com .
RMS and the RMS logo are trademarks of Risk Management Solutions, Inc. All
other trademarks are property of their respective owners.
SOURCE Risk Management Solutions
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Related links:
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CONTACT:
Deidre Campbell, +1-212-521-5213,
dcampbell@torranceco.com, or Eric Samansky, +1-212-521-5247,
esamansky@torranceco.com, both of TorranceCo for Risk Management
Solutions
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