Boston-based AIR releases terrorism risk model

AIR Worldwide, a Boston-based catastrophe and weather risk modelling company, today released what it claims is the first commercially available terrorism risk model. The model estimates the financial impact of insured property and workers' compensation losses from potential future terrorist attacks in the US.

The model analyses threats posed by domestic extremists, international and state-sponsored terrorist organisations, as well as loosely affiliated networks, examining a range of potential conventional attacks, including air crash and bomb blast, and their impact on insurers' and reinsurers' books. The new model should help insurers and reinsurers quantify their risks, assess coverage and exclusions, estimate the financial impact of attacks, support pricing decisions and improve overall portfolio management, AIR claimed.

Insurers and reinurers with a large property portfolio are likely to pay $200,000 for the model, whereas smaller companies will pay up to $50,000. A spokesman added that AIR is also examining non-conventional weapons damage including chemical, biological, radiological and nuclear. Models incorporating these threats should be available by early 2003. AIR is also working on an international roll-out of the services.

AIR employed a team of counter-terrorism specialists with experience at government agencies such as the FBI, CIA and the Department of Defense to develop the model.

"The evaluation process that AIR has undertaken regarding terrorism is extremely important," said Buck Revell, a former associate deputy director at the FBI responsible for criminal investigations, and one of the advisers for AIR’s model. "The first and most important element of being prepared is to understand the true nature of the risk and the consequences of not being prepared for a terrorist attack."

The frequency and severity of attacks were estimated using the Delphi Method, developed by the Rand Corporation at the start of the Cold War. The Delphi Method has been used to generate forecasts in many areas including inter-continental warfare and technological change.