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Risk Management
Terror Models Help Pricing
Improvements in computer modeling for estimating commercial property terrorism exposures can help insurers better price coverage, according to David Lalonde, SVP, AIR Worldwide Corp. (Boston). "In the area of catastrophe modeling ... 9/11 was a wake-up call in terms of managing accumulations of exposure across multiple lines of business," Lalonde told attendees at the Casualty Actuarial Society's (Arlington, Va.) annual seminar on ratemaking in New Orleans in March. In its models, AIR, a provider of analytical tools and software systems to help companies manage risk, is concentrating on two main types of potential future terrorist attacks: conventional and chemical/biological/radiological/nuclear (CBRN). "Now, insurers and reinsurers are taking a much broader view of catastrophe risk in addressing the financial exposure of possible future attacks," Lalonde said.
"The ongoing improvement in the level of detailed data being collected in terrorism modeling shows the importance of examining exposures, the types of weapons terrorists might use and their potential targets," Lalonde explained. AIR's conventional attack damage estimates consider multiple effects on the target and surrounding buildings, and CBRN events are modeled using the Department of Defense standard model, which includes the full spectrum of CBRN weapons. AIR also has assembled a team of experts to identify terrorist groups' objectives, capabilities, resources and the history of their attacks. The resulting threat index can be spread across individual landmarks in a geographic area.
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