How risk modelling can improve terrorism risk solutions

18 November 2016

Developments in modelling and data can help insurers to adjust their insurance to changing terrorism risks.

Developments in modelling terrorism exposures are at the forefront of helping insurers adapt to the rapidly evolving risk of global terrorism.

The economic and human cost of terrorism has been rising at an alarming rate, shows statistics from the Institute for Economics and Peace and the Global Terrorism Database.

In 2014 almost 45,000 people were killed as a result of terrorist actions, compared with 2,000 in 2000. In economic terms, the cost of terrorism in 2014 is estimated at $52.9bn, up from $4.9bn in 2000. With the increase in, and evolution of, terrorism risk, companies’ terrorism insurance needs have changed.

Modelling advances will be crucial in delivering innovative terror (re)insurance solutions to meet these changing needs, according to Andy Taylor-Preston, Senior Consultant, Credit, Political & Security Risk, JLT Specialty.

Outdated models

Current models were developed in reaction to historical events in large metropolitan areas, and do not provide forward-looking assessments of new risks, says Taylor-Preston.

“A different approach to modelling terrorism risk is needed. Models should consider new attack types and sizes, different terrorist types and groups and have a comprehensive selection of targets,” says Taylor-Preston.

Sunstone™, JLT’s bespoke terrorism model uses a wider spectrum of attack types, historical incidents and target data to identify and quantify accumulation, concentration and portfolio risk with a much higher degree of granularity.

Based on a combination of historical research and input from a panel of experts, the stochastic model can support insurers as they seek solutions for new and complex terrorism risks.

According to Taylor-Preston, further developments in modelling and data can support efforts to find market solutions for a range of emerging or challenging risks, including flooding and cyber terrorism risks.

Download this Risk Perspective article.

For further information, please contact Andy Taylor-Preston, Senior Consultant, Credit, Political & Security Risks at JLT Specialty on +44 20 7886 5424 or email andy_taylor-preston@jltgroup.com