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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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