AIR Terrorism Loss Estimation Model
The federal Terrorism Risk Insurance Act of 2002 (TRIA) requires all property/casualty insurers writing commercial lines policies to offer coverage for losses caused by acts of international terrorism within the United States. To comply with the law, you need to make difficult pricing decisions.
The AIR Terrorism Loss Estimation Model can help you make those decisions.
The fully probabilistic AIR model estimates losses from possible future terrorist attacks. The model supports pricing and underwriting decisions down to the level of an individual policy.
ISO's actuaries used the model in developing the advisory loss costs filed on behalf of insurers.
Quantitative information for analysis and decision making
The AIR Terrorism Loss Estimation Model provides quantitative information that will help you understand the risks of terrorism. You can use the model to:
- analyze concentrations of exposures and their proximity to likely targets
- examine the effects of various weapons on specific buildings
- perform probabilistic analyses of your own portfolio
- support decisions on pricing, portfolio management, and overall risk management
AIR's structured approach provides probabilistic loss calculations for:
- property
- workers compensation
- life
- accident and health
- disability
And with the AIR Terrorism Loss Estimation Model, you can analyze the correlations of estimated losses across all those lines of business.
Here's how it works
AIR Worldwide, a sister company of ISO, pioneered the sophisticated catastrophe modeling technology used today throughout the insurance and financial industries to estimate the effects of natural catastrophes. The AIR Terrorism Loss Estimation Model is similar in structure to the natural catastrophe models. The terrorism model considers:
- the frequency and severity of attacks
- likely targets
- the effects of various weapons on the targets and surrounding structures
But unlike natural catastrophes, terrorism is a function of highly variable human behavior. So, to evaluate the likelihood and nature of future attacks, AIR assembled a team of counterterrorism specialists with high-level operational and analytic expertise. Team members have decades of experience at government agencies, such as the FBI, CIA, and Department of Defense.
With input from the team, AIR identified more than 300,000 potential targets for attack, including commercial, industrial, transportation, educational, medical, religious, and governmental facilities around the United States. AIR also identified a subset of the targets — so-called "trophy" targets — with a higher probability of major attack.
The model analyzes threats posed by a wide variety of domestic and international terrorist groups, each with its own goals and capabilities. The model considers damage from a comprehensive array of conventional weapons, including bombs of various sizes, as well as airplane crashes. And the model analyzes the effects of nonconventional weapons, including chemical, biological, radiological, and nuclear.
Weapons effects on structures
The AIR Terrorism Loss Estimation Model takes a rigorous engineering-based approach to estimating the damage from various weapons on both the targets and surrounding buildings. The effects are multiple and include pressure and shock waves, fire, and both falling and projectile debris.
To estimate the effects of chemical, biological, radiological, and nuclear weapons, the model uses the Consequences Assessment Tool Set (CATS) — software developed for the Defense Threat Reduction Agency and the Federal Emergency Management Agency (FEMA).
Probability distributions for loss and injuries
The AIR terrorism model simulates the full range of potential attacks and the resulting losses. The model also estimates the likelihood of each potential loss. The loss calculations take into account policy coverage structures and, for casualty lines, benefit structures.
For more information. . .
. . . about AIR, visit the AIR website. And to find out how you can get AIR products and services — or to get in touch with a sales representative — contact ISO. You can also call us at 1-800-888-4476.
