In Brief

Modeling Terror

Risk Models Help CSOs And Insurers Predict Catastrophe

By Paul Roberts

September 30, 2004 — CSO — To write insurance policies that cover events such as terrorist attacks, insurance companies need to understand the risks. Air Worldwide develops risk models used by insurance companies to manage the financial impact of catastrophes. The Air models rely on input from a team of antiterrorism experts and a database of potential targetssuch as landmarks, sports arenas and shopping centersaccording to S. Ming Lee, senior vice president at Air Worldwide. Assessments from experts, collected using structured questionnaires, are analyzed and used to create a probabilistic model that rates the likelihood of an attack. Air tracks almost 300,000 potential targets in the United States and assesses the probability of an attack on each via a variety of weapons, from conventional bombs to weapons of mass destruction. The model takes into account physical damage to property and loss of life.

Air partnered with Michael Stapleton Associates to provide a security auditing service that combines Air's terrorism modeling technology with Stapleton's expertise in perimeter and physical security.

Losses to companies from terrorist attacks come in two forms: damage inflicted directly on property and collateral damage from attacks on neighboring property, Lee says. And, while companies in major cities like New York and San Francisco are more at risk of suffering from a terrorist attack, location is not the only consideration, he says. "You have to consider what level of security you have and the relative security of the buildings nearby. If you're a high-profile company and you're more secure, there's a push-off effect. Somebody who's intent on going after a big-name company in the Wall Street area might avoid your building, but go after another that could impact you as well," he says.

-Paul Roberts

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