Mitigating Terrorism Risk

Sept. 11, 2001, precipitated a sudden shift in thinking about the significance of man-made events (such as terrorism) in catastrophe (CAT) management strategies among insurers and reinsurers. But technology, having proven useful in helping spread risk profiles in anticipation of more deterministically calculable natural catastrophes, still has a crucial role to play.

While 2001 was "business as usual," in terms of natural catastrophes, it turned out to be an "annus terribilis" in terms of man-made disasters, according to Werner Schaad, chief risk and reinsurance officer, Swiss Re (Zurich, $15.4 billion in gross premium). "A new risk landscape has opened up," he says. "What was an island in the pool of risk has turned out to be a continent." September 11 set a world record for catastrophe, resulting in overall losses in the $50 billion range, Schaad notes.

While less predictable than natural disasters, terrorism still has probabilistic features that technology can assist in predicting, according to Steven Kauderer, partner, insurance industry group, Accenture (New York). "The key to underwriting lies in using technology to leverage information by micro-segmenting risk by geography, product, customer type and other factors," he says. "Being able to assess and price the risk more accurately creates a competitive advantage."

GIS Tools May Help

Spatial analytic tools based on geographic information system (GIS) technologies—which incorporate latitude and longitude information—include evaluation of factors not traditionally considered by insurers, says John Cantwell, director, underwriting decisions group, Marshall & Swift/Boeckh (Princeton, NJ). But non-technology measures must also kick in, Cantwell says. "Having been relaxed in the past, companies need to return to underwriting fundamentals."

Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio