Article written by: Virág Fórizs, Analyst at Verisk Maplecroft & Jonny Green, Risk Consultant at AIR Worldwide
(AIR Worldwide is a Silver Sponsor of C4 2017)
With so many terrorist attacks around the
globe there may be a perception that the risk of terrorism is increasing. Whether
this is the case or not is a hotly debated topic, but as the Head of Global
Crisis Management at Allianz Global Corporate & Specialty mentioned
to the Wall Street Journal last year, the nature of terrorism insurance is
changing, even if the threat isn’t.
These changes in perceived risk and associated
loss can be difficult to account for when considering new business. A
combination of qualitative reporting and quantitative analysis is needed to provide
insight into the multi-faceted nature of terrorism risk.
Qualitative reporting can give a national
level assessment of terrorism risk by monitoring three characteristics:
- An overview of the intensity and threat of known terrorist groups
- The impact of historical events, and
- Counter-terrorism capabilities including security forces and policies
The overall view of risk can be enhanced through
quantitative means by considering the current level of exposure in an area
through accumulation analyses and a realistic view of losses via deterministic
scenarios. This blog discusses both qualitative and quantitative means of
terrorism risk management using solutions from Verisk Maplecroft and AIR
Worldwide.
Identifying
and understanding terrorism risks
Databases containing details of historical
terrorist incidents and risk indices derived from those incidents are vital to
understanding the evolving nature of terrorism risk to insured assets. However,
it is also crucial to have an assessment of the current level of terrorist
threat and a view of security forces’ ability to conduct counterterrorism.
Verisk Maplecroft’s Terrorism Incident Database,
combined with its suite of quarterly-updated terrorism indices, provides
underwriters with analytics to understand the current threat to an insured
asset and how that threat evolves over time.
The indices cover 198 countries worldwide
at national and subnational levels. The Terrorism Database contains more than
130,000 incidents from 2004 to the present day. Each incident record contains a
narrative alongside up to 20 individual data points, including weapon types,
perpetrator groups, casualty profiles, details of damage to physical assets,
and the most precise geo-tag possible.
The Terrorism Intensity Index has been
calculated at the subnational level down to 1km2 resolution. Combining
geo-tags for each terrorist incident with data from the Terrorism Intensity and
History of Terrorism Indices, underwriters can instantly quantify terrorism
intensity on a 0–10 scale for any location worldwide.
In addition, Verisk Maplecroft’s Access
an Analyst service taps the combined knowledge political risk experts in
more than 40 countries to offer qualitative assessments of the security risks
posed to a particular region.
Terrorism
Risk Management Solutions
Once an understanding of the terrorism situation has been gained, analyses using AIR's Touchstone® platform can be used to add a financial value. For risks located outside of the U.S three methods can be combined to give a comprehensive insight into terrorism risk; these can be done at the individual account or portfolio level.
1) Ring
based analyses - Identifying the point of Maximum Exposure
The point of maximum exposure within a
portfolio can be identified using ring based analyses, and its exposed limit can
be calculated for given radii. The Dynamic
Ring Analysis functionality in Touchstone—as explained in this video—allows users to
find the point at which a ring of a given size covers the maximum exposure
concentration in their portfolios, pinpointing the area most vulnerable to a
single terrorism event. Locations with high exposure concentrations can be
cross-referenced with the risk profile developed by Verisk Maplecroft to ensure
that a portfolio is not overly-exposed to high risk sections of a country.
2) Accumulation
using Verisk Maplecroft’s Terrorism Intensity Index
These metrics can be used to compare the
relative terrorism risk between accounts/portfolios. A real strength of Verisk
Maplecroft is the risk indices across different themes. When considering the
threat of terrorism these indices are developed further to produce a subnational
Terrorism risk map that details the risk index to 1km2 resolution (Figure 1).
Figure
1: The Subnational Terrorism Intensity Index map displayed using
Maplecroft’s Global Alerts Dashboard. Individual events are also recorded and
displayed here.
|
AIR has taken this subnational map and
created a hazard layer for use within the Geospatial Module of Touchstone. This
allows a user to analyse their exposure and identify exposed limits by risk
band, enabling portfolios or accounts to be managed so terrorism risk is spread
to prevent a concentration of exposure in a high risk area or inform a risk-based
selection of contracts.
Another accumulation method, little used
due to lack of available data, can still give insights into what would happen
if historic attacks occurred today. Instead of being ring based this method
uses accumulation of exposure within historical blast footprints, such as the
1993 Bishopsgate bombing in London. With improved data processing technology,
historical images can be geo-tagged and used to create footprints on which to
accumulate; such work has been done by some organisations where information is
available (Figure 2).
Figure
2: Shapefile
produced of documented damage from the 1993 Bishopsgate bombing and imported
into Touchstone® for use in accumulating exposure. (Source: AIR and IMSL)
|
3) Deterministic
Loss Analysis
The third method is to calculate the
potential loss if an attack were to actually occur. With Touchstone 4.0 (released
June 2016) AIR provided the opportunity to run deterministic loss analyses for
terrorism in 27 countries across the globe (Figure 3). Deterministic
analysis estimates losses (not exposed limits) from a blast of a defined
tonnage of TNT centred at a specified location. These analyses use continuous,
physics-based blast attenuation functions and engineering expertise to estimate
damage and loss within physically realistic footprints. Three primary pieces of
information are used in the deterministic analysis: the urban density of the
region where the blast is simulated, the tonnage of the weapon being used, and
the vulnerability of the structure to overpressure.
Figure 3: The user interface
for creating terrorism events in 27 countries worldwide is intuitive with point
and click functionality. The image shows approximately 4,000 events already
created with the option to manually import a conventional or CBRN event in the
U.S. (Source: AIR)
|
Using an Urban Density Index for these 27
countries, the severity of damage to a property from a variety of different
devices ranging from a portable rucksack bomb to a large truck bomb similar to
that used in the Bishopsgate bombing can be simulated. The functions defining
the vulnerability of structures to a blast have been developed in the same way
that vulnerability functions exist for other hazards. They have been tuned
using historical data and incorporate research by organisations such as the
Department of Defence.
The reports and focussed insights provided
by Verisk Maplecroft allow risk professionals to understand the terrorism
threat to their exposure on a regional and sub-regional basis. These insights
can then be enhanced using Touchstone to consider the potential financial
exposure within a threat band and to identify the point of maximum exposure
within a ring. This financial view of the risk can be refined by using AIR’s
Terrorism Model to consider estimated losses if a potential attack were to
occur. Using a combination of the insights obtained through Verisk Maplecroft
and Touchstone a comprehensive view of the risk of terrorism can be quickly and
easily achieved.
This blog post has been supplied by AIR Worldwide.
Charlene Chia, Senior Risk Consultant, AIR Worldwide is a panelist at CatIQ’s Canadian Catastrophe Conference (C4 2017) on the Terrorism Risk session during the conference.