Approximately a year after the U.S. terror attacks on September 11, 2001, Moody’s RMS released its first U.S. Terrorism Risk Model.
Towards the end of 2002, the U.S. Congress passed the Terrorism Risk Insurance Act (TRIA) into law, which introduced the Terrorism Risk Insurance Program (TRIP) to provide a federal backstop for insurance claims related to acts of terrorism.
The new Act required that U.S. insurers offer terrorism coverage for specific commercial lines of property and casualty insurance.
This first Moody’s RMS U.S. Terrorism Risk Model looked to assist property, workers’ compensation, life insurers, and reinsurers in quantifying the risk from catastrophic terrorist attacks.
The model was developed using a core philosophy for terrorism modeling based on defined principles, together with a model framework that considered the motives, preferences, and capabilities of terrorist groups.
The model then translated these factors into the quantification of target relativity, attack mode relativity, the likelihood of swarm attacks, and overall terrorism activity.
Twenty Years of Terrorism Risk Modeling Innovation
There has been a wealth of innovation in our terrorism modeling over more than 20 years.
This includes expanded geographic coverage with the identification of some 10,000 high-risk terrorist targets across 18 countries, and the models now benefit from a database of over 125,000 historical attacks.
The models have been regularly updated alongside changing industry practices and a dynamic global terrorism risk landscape.
The landscape has shifted in the face of increased counterterrorism funding and the sophistication of counterterrorism efforts, towards a higher frequency of low-severity attacks resulting in minimal insurable damages.
As evidence that we are dedicated to developing and innovating our approach to this peril, we are excited to announce two major developments regarding our terrorism models, with the release of our brand new Moody’s RMS Terrorism high-definition (HD) Model and the integration of the Terrorism Scenario Model into the Moody’s RMS Intelligent Risk Platform™.
These new developments allow for a more transparent and sophisticated representation of Moody’s RMS Terrorism modeling framework to meet the needs and expectations of the industry in the current threat landscape.
Advancing the Moody’s RMS Terrorism Modeling Framework with Simulation in HD
One hallmark of terrorist activity is the utilization of swarm attacks, defined by John Arquilla and David Ronfeldt from the RAND Corporation as ‘…a deliberately structured, coordinated, strategic way to strike from all directions, by means of a sustainable pulsing of force and/or fire, close-in as well as from stand-off positions.’
Swarming can make terrorism impacts more severe and increase the likelihood of at least partial success – consider, for example, the 9/11 attacks, or the Paris terror attacks in November 2015.
The previous Moody’s RMS Probabilistic Terrorism Model used an Attack Loss Table with a list of defined single attacks, and a convolution process to mathematically account for the large number of attack combinations that may comprise a range of swarm attacks, without explicitly listing them all to minimize model runtimes.
With advancements in cloud-computing capabilities and the introduction of the simulation-based Moody’s RMS HD model framework on the Intelligent Risk Platform, the Terrorism HD Model explicitly models the occurrence of terrorism events and includes single or multiple attacks, using a set of over two million events to provide a more realistic representation of the risk.
Within this expanded event set, the model now considers a wider range of attack modes with varying degrees of frequency and severity.
Smaller attacks, such as car bombs, are simpler to achieve, so are more common with lower impact. Larger, more sophisticated attacks, such as biological agent releases, are very difficult to achieve, so are very rare, but with much higher impact.
To capture the occurrence of rare terrorism events without necessitating an excessively large event set, the new Moody’s RMS Terrorism HD Model uses a Weighted Period Event Table (WPET) as part of the simulation methodology.
Rare events are represented using hazard periods with lower weights, and frequent events can be represented by hazard periods with higher weights.
In addition to the explicit event simulation, the move to the HD methodology includes upgraded functionality to capture data like covered Cause of Loss, and the capability to model all financial terms that exist in the Moody’s RMS Exposure Data Module (EDM) for primary insurance as well as reinsurance.
Integrating Probabilistic Terrorism Modeling into a Unified Platform
In 2022, Moody’s RMS released the Terrorism HD Model for property lines within the Risk Modeler™ application on the Intelligent Risk Platform.
This means that, for the first time, probabilistic terrorism modeling can be executed right alongside all other perils in the Moody’s RMS catastrophe modeling suite, within a singular application.
And our clients can benefit from consistent import, financial modeling and grouping, and results output. This has long been our goal and we are excited to finally see this come to fruition so we can offer a unified experience to our clients.
In the fall of 2023, we will also complete the probabilistic terrorism modeling solution with support for modeling human casualty exposure, to support Workers’ Compensation insurance and other lines.
Building on Terrorism HD Modeling
Moody’s RMS will build on the release of the Terrorism HD models later this year with the integration of Terrorism Scenario Modeling functionality into ExposureIQ on the Intelligent Risk Platform.
This adds support for analyses that users might run to evaluate worst-case, user-defined, or what-if scenarios, including Lloyd’s Realistic Disaster Scenarios (RDS).
Leveraging the Moody’s RMS Data Store on the Intelligent Risk Platform exposure data can be seamlessly moved between Risk Modeler and the ExposureIQ application enabling clients to streamline their regulatory and rating agency reporting workflows.
Additionally, new versions of the Terrorism Industry Loss Curves will be released, using the updated simulation methodology to be consistent with the Terrorism HD models.
By bringing our terrorism modeling solution to the Intelligent Risk Platform, we can offer access to market-leading modeling for all our clients, that leverages the principles of terrorism modeling pioneered by Moody’s RMS.
For our existing terrorism model clients, we look forward to facilitating your adoption of our terrorism solution on the platform, and for (re)insurers that do not currently license the model, we hope that the integrated experience can make our model more accessible for your terrorism risk modeling needs.
For more information on Moody’s RMS terrorism modeling solutions, click here.
