FOLKMAN WED 330PM VEN III.pdf

8/12/2019 FOLKMAN WED 330PM VEN III.pdf

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TERRORISM MODELING AN

RISK MANAGEMENT

February 11, 2014

Chris FolkmanDirector, Model Product Management


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Terrorism Modeling Overview Event frequency in probabilistic te

modeling

Modeling Framework! Exposure! Hazard! Vulnerability! Probabilistic Framework

TRIA implications in terrorism riskmanagement

OUTLINE


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TERRORISMMODELBACKGROUND

September 11th, 2001 attacks: $40 billion iloss. WTC attack footprint: 16 acres.

Models created in 2002-2003 in response tdemand for terrorism solutions.

Terrorism modeling data has improved ovedecade.

" More data on plot frequency" More data on attack suppression / suc" More insight into countersecurity" Better calibration of hazard and vulner


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EXPOSURE MANAGEMENT

! Monitor exposureconcentrations around high risktargets.

! Identify building levelaccumulations.

! Identify exposure Hot Spotswithin given radius.

TERRORISM RISK MANAGEMENT A THREE PRONGEAPPROACH

SCENARIO LOSS MODELING

! Quantify loss for one attackscenario.

! Manage losses of benchmarkscenarios to acceptable levels.

! Submitted to rating agencies(i.e. Best SRQ).

PROBABILISTIC L

! Identify most critiscenarios for a por

! Determine relativof attack scenarios

! Calculate impact attacks as part of aevent (multiplicity).


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Probabilistic terrorism modeling delivers dee

key drivers of loss on a portfolio

" Analysis of comprehensive event catalog (90" Key losses by account, location, target type, c

business

" Assist underwriters in risk selection" Design and implement underwriting guideline" Capacity allocation" Evaluate reinsurance needs and options

PROBABILISTICMODELING OFTERRORISM


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Theres not enough data to meaningful rates

RMS rates are based on empirical data, not judg RMS frequency is calibrated against hundreds of

source intelligence - known, intercepted, and/or rconvictions to set the baseline threat level for e

Event rates are scaled with data based on: Attack mode Target category City

As the threat landscape changes, so does freque

TERRORISMFREQUENCY:COMMONMISPERCEPTIONS


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You cant model human beh

RMS does not model human behavior. Terrorism modeled as a control process: terrorist

constrained by countersecurity measures.

Terrorists are rational actors. Targeting strategmaximizing attack leverage.

Suppression and interdiction rates based on datasource intelligence, court convictions, DHS disbu

Range of outcomes from conventional terrorism " Multiple successive terrorist events: not pl

suppressive law enforcement action followievent.

" Multiple hurricanes making landfall (i.e. 200plausible.

TERRORISMFREQUENCY:COMMONMISPERCEPTIONS


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All carriers writing terrorismmaking assumptions about f

These assumptions should be informed by data, RMS model incorporates dozens of data sources

calibration:

PROBABILISTICTERRORISMMODELING

Terrorism Plots

Strength ofCountersecurityEnvironment

Target Selection

# Terrorism court convictions# Intercepted plots# Open source intelligence

# DHS disbursements# Municipal anti-terror resources

# Gross municipal product of city# City name recognition in middle e# Symbolic value of target# Building level security perimeters


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EXPOSURE AT RISK

FRAMEWORK FOR TERRORISM MODELING

QUANTIFY HAZARDASSESS VULNERABILITY PROBA


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Exposure atRisk

QuantifyHazard

AssessVulnerability

Concentrated nature of terrorism risk demaccurate and high resolution exposure da

All addresses geocoded to lat-long before mode Post code centroid is insufficient

Large variations of risk exist within a single post

Hazard and vulnerability not averaged across a Data quality is paramount

IMPORTANCE OFADDRESSRESOLUTION

ZIP Code Centroid10017

UnitedNations


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ATTACK MODES

MODELED

Exposure atRisk

QuantifyHazard

AssessVulnerability

600 lb Car Bomb1 ton Minivan Bomb

5 ton Truck Bomb

10 ton Trailer Bomb

2 ton Box Van Bomb

Aircraft Impact Attack

Tanker Conflagration Attack Nuclear We

Biological A

Radiologica

Chemical A

Sabotage A

Various wind speeds, isotopes, and indoor/outdoor optionsapply


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HAZARD BY

ATTACK TYPE

Exposure atRisk

QuantifyHazard

AssessVulnerability

ATTACK MODES HAZARD DESCRIPTIO

Conventional Bomb Attacks Blast pressure (PSI)

Hazardous Transportation Sabotage,Industrial Sabotage - Toxic Release

Particulatecontamination

Aircraft Impact Distance from target

Biological / Chemical Attack (Outdoor)Dosage / depositionof contaminant

Conflagration Fire ignitions

Dirty Bomb, Nuclear Plant Sabotage Radiation level


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SIMPLEDAMAGEFOOTPRINT

Bomb blast indowntown Manhattan

0 250 500125 Meters

Exposu

Hi

Lo

Acc

NY Accumulation Centroid

Hazard rings represent blastpressure dissipating as it

moves away from the centroid

Exposure atRisk

QuantifyHazard

AssessVulnerability


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HIGH

RESOLUTION

FOOTPRINT

Large Anthraxrelease in downtown

Chicago

Better reflects local

environment and

orientation of footprint

Downtown Chicago

Anthrax

Contamination

Highest

Lowest 0 5 10 15 2.5

Exposure atRisk

QuantifyHazard

AssessVulnerability


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Exposure atRisk

QuantifyHazard

AssessVulnerability

Represent the relationship between level of hand damage

! Effects on property, disruption of services,loss of life

! Expressed as mean damage ratio (MDR) casualty rate (MCR)! Vulnerability functions by building construc

height.

VULNERABILITYOF TERRORIST

ATTACKS


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MEAN DAMAGERATIO BYDISTANCE TO

TARGET

Exposure atRisk

QuantifyHazard

AssessVulnerability

Vulnerability variesby building

characteristics.

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Exposure atRisk

QuantifyHazard

AssessVulnerability

Standard Fire Policy (SFP): In U.S., many strequirethat fire following terrorism be includeproperty coverage.

Explicit quantification of fire-related damagesfor selected attack modes:

! Bombs! Aircraft Impact! Conflagration! Industrial Sabotage! Nuclear

FIRELOSSES

Mitsubishi Steel and Armament Works~ 700 meters from hypocenter, NagasakiFrom: www.hiroshima-remembered.com


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Terrorist target selection based on maximizinleverage.

Criteria for targets based on:

! Economic Impact! Symbolic Value / Publicity Value! Casualties! Debriefings of Operatives! Historical Attack Patterns! Known Planned Attacks! Intelligence Reports and Expert Opinions

TERRORISTTARGETDEVELOPMENT

Exposure atRisk

QuantifyHazard

AssessVulnerability


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Exposure atRisk

QuantifyHazard

AssessVulnerability

Attack Frequency" Country Specific" Plots$Attacks" Recalibrated frequently

Conditional Probability. Given that anoccurs, what is its likelihood by:

" Type of attack" Type of target" City

Attack Multiplicity" Multiple attacks = One Event

COMPONENTS OFTERRORISM RATES

F h C i l R h S i A il 201


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TRIASTRUCTURE

From the Congressional Research Service, April 201


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TRIA RENEWALEFFORTS

Political Challenges

House financial committeehas 46% new membershipsince last TRIA renewal.

Aversion to perceived bailout legislation persists.

TRIA backstop providedwithout charge, premiumcollected without incident.

Key Support

Strong, united lobby frombanking, insurance, andconstruction industries to

promote TRIA renewal.

Renewal proposed 3 timesin congress in 2013, by

members of both parties.

Non-rene

Moodys 2002.

Sunset cldelayed /construct

Capacity rate incre

RMS top terrorism

WashingtFrancisco


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The terrorism threat

gradient is steep: 75%

of AAL is in five metro

areas.

TRIACONSIDERATIONS

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Winterstorm Terrorism Earthquake+ Fire

Hurricane C

$MillionsTerrorism risk is

comparable

with nat cat risk.

TRIACONSIDERATIONS

RMS U.S. Industry Loss Curves by


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TRIACONSIDERATIONS

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NBCR severity makes it difficult to


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Market Capacity" Evan Greenberg, CEO ACE Ltd: I would

[terrorism cover] available, nor would anthat I know of.

Workers Compensation" Terrorism cannot be excluded" Residual markets can be >50% more ex

private carriers

Commercial Development" Loan Covenants require terrorism cover" Moodys: $4.5 billion in mortgage securi

(2002) due to lack of terrorism insurance

TRIA RENEWAL:WHATS AT STAKE

All terrorism writers make assumptions on event freque


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All terrorism writers make assumptions on event freque Assumptions should be based on data. Probabilistic terrorism modeling allows most c

view of risk.

Terrorists are rational actors whose targeting selectionprincipals maximizing attack leverage

Best practice: Use multiple approaches to best triangu Exposure management Deterministic scenarios Probabilistic modeling

Location-level data quality is importantdue to small ev Terrorism risk is comparable with nat cat risk. Terrorism risk can be successfully modeled. Insuring it

TAKE AWAYS

FOLKMAN WED 330PM VEN III.pdf

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