Modelling the unthinkable

In November, the US government passed a law requiring all insurers to underwrite terrorism risk, forcing them to find a way to price this exposure. Could terrorism risk models be the answer? By Paul Lyon


When Boston-based catastrophe modelling company AIR Worldwide placed Washington DC in the top tier of its three-tier terrorism risk assessment at the end of last year, Lawrence Mirel, the District of Columbia’s chief insurance regulator, complained. Attempts to model terrorism risk are inherently unreliable, he argued, since they rely on insufficient data that purports to quantify human behaviour.

Unsurprisingly, modelling companies say this isn’t the case, arguing that it is in fact possible to

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