Loss Prediction Software

Risk Modeling Anticipates Terrorist Attacks

Still smarting from unprecedented losses in the wake of theSeptember 11 attacks, insurers are hoping new terrorism risk modelscan help them to write coverage more accurately for any such futureevents. New computer simulation models are tapping into theknowledge of counterterrorism, weapons, and security experts toyield results that will enable insurers to price such coveragebased on likelihood of attack.

A key question being asked of such experts is what the UnitedStates can expect from terrorist groups such as al Qaeda in themonths and years to come. At a recent press conference, RohanGunaratna, author of Inside Al-Qaeda, and a research fellow at theCentre forthe Study of Terrorism and Political Violence at theUniversity of St. Andrews, said, Al Qaeda has always gone for highprestige, symbolic targets. While the group would prefer to strikeat targets inside the U.S., he said, it would also attack U.S.interests outside the country as an alternative.

In a similar way to the flow of water, which seeks the path ofleast resistance, the flow of al Qaeda activity is toward weaponsand targets that present the lowest technical, logistical, andsecurity barriers to mission success, said Gordon Woo, amathematician who developed a terrorism model for Risk ManagementSolutions, Newark, Calif.

Following the high-profile attacks of September 11, Gunaratnaexpects to see only medium and small attacks. Larger attacks, henoted, take years of planning across more than one country. He saidthe planning for the September 11 attacks took two years. [AlQaedas] capability to conduct big operations has diminished due tohaving some of its leaders captured and to increased securitywithin the United States, said Gunaratna. If the present level ofsecurity is maintained, we will not see large-scale operations forthe next few years.

Woo agreed, noting, On the one hand, we have al Qaedas desire tomaximize the utility of their attacks, and on the other hand, wehave to consider their rational response to stepped-up security andcounter-intelligence efforts, and the constraints of theirtechnological and logistical capabilities. Gunaratna warned, Thecore of al Qaeda is intact. Woo said the United States suffers froma huge under-funding of homeland security, and that wont go awayuntil there is another major attack.

Hemant Shah, president and CEO of RMS, said, There arerelatively few targets of sufficient utility to an organizationlike al Qaeda. Nonetheless, he added, the near-term risk is drivenby possible use of conventional weapons. A likely mode of attackwould be a swarming scenario in which several targets would beattacked simultaneously in an effort to overwhelm a citysresources, said Shah.

Speaking of his firms computer modeling of potential terroristactivities, Shah said, There are a lot of uncertainties in themodel. There are a lot of assumptions we need to make. Woo addedthe sophistication of such models will improve over time, and suchmodels might be useful to the government in prioritizing protectionof likely targets. Ara C. Trembly

Risk Modelers Hope Its Just a Game

Three risk management companies have released terrorismassessment models for the insurance industry within the last twomonths. Joining Risk Management Solutions (www.rms.com) inpresenting terrorism models are AIR Worldwide Corp.(www.air-worldwide.com), which released AIR Terrorism LossEstimation Model, and EQECAT, Inc. (www.absconsulting.com), whichreleased its EQECAT terrorism model. The models assist insurers inexamining potential risks in the property, workers comp, and lifeinsurance areas from catastrophic terrorist attacks.

In the past, RMS, a product and service provider for the riskmanagement industry, has dealt with risk modeling for naturalcatastrophes, but Peter Ulrich, managing director enterprise riskfor RMS, says, This is different from what weve done in the past.Nature is not malicious, but terrorists are. Their goal is to findthe biggest weapon to attack the biggest target in the biggest cityat the worst time of the day.

RMS borrowed from Nobel Prize-winning mathematician John Nashand his Game Theory. Ulrich says it is basically a war game whereeach side has limited resources. Im trying to anticipate what youregoing to attack, and you try to anticipate where Im going todefend, he says.

RMS came up with approximately 1,500 credible targets across theU.S. The targets are a mixture of high-profile structures,facilities, and landmarks as well as central business districts ofsignificant cities across the country. The model also considersvarious attack modes from conventional weapons to improvisedweapons along with chemical, biological, radiological, and nuclearscenarios.

Both the AIR and EQECAT models treat terrorism in aprobabilistic manner. The AIR model analyzes threats posed byextremists, both domestic and foreign, and the potential impact oftheir actions on insurers and reinsurers and their books ofbusiness. The problem business faces today is the uncertainty aboutcoverage, exclusion, and price, according to Karen Clark, presidentand CEO of AIR Worldwide, a subsidiary of ISO.

The EQECAT models property damage functions are based onhistorical and test data, and engineering analysis with workerscomp vulnerability functions derived from extensive claims data,according to Dr. Mahmoud Khater, chief technology officer atEQECAT. Experts from ABS Consulting, which owns EQECAT, and fromoutside the company assessed the likelihood of attacks and thetargets and hierarchy assigned to the different modes of attack.Robert Regis Hyle

Awards

Progressive.com Named Top Insurance Web Site

The Web Marketing Association (WMA) has honored auto insurerProgressive Insurance with its Best Insurance Website award for2002. The Web site (www.progressive.com) was judged for itsinnovation, navigation, interactivity, content, ease of use, andusefulness to target audience.

Weve worked hard to make Progressive.com the site all consumerscan use to better understand and manage their auto insurance, saysToby Alfred, site manager for Progressive.com. Among theinnovations cited by the WMA is a rate ticker that displays asampling of comparison rates provided to consumers across thecountry. The spread in rates available from different companiesrepresents a clear opportunity for consumers to save money on autoinsurance, says Alfred.

This is not the first award for Progressive.com. Gomez, Inc.(www. gomez.com), an Internet measurement firm, has rated the siteNo. 1 for six consecutive rating periods.

Survey

Majority of Claims Professionals Describe Technology asAdequate

In a recent online survey conducted by Claims magazine(sister publication of Tech Decisions) through itselectronic newsletter, Claims eNews, claims professionalswere asked whether the technology they currently use fits the bill.Of 68 respondents, 65.5 percent used the word adequate to describetheir feelings about their technology. Fourteen percent repliedthey needed more technology help, 10 percent said they dontunderstand their technology and need more training and instruction,and seven percent said the technology they use is antiquated. Andwhat of the remaining 3.5 percent? With their heads firmly placedin the sand, they longed for the good old days.

Online Initiatives

Travelers Agents Get Claims Notification

Electronic claims notification (ECN) is available to independentagents of Travelers Property Casualty for auto, property, andliability claims as an enhancement to the agency portal offered bythe P&C insurer. The Travelers agency portal provides agentsaccess to systems, forms, and applications that they use on a dailybasis. ECN gives the agents notification when one of theircustomers has opened or closed a claim.

Electronic claims notification provides another tool that freesup time for an agency for other aspects of sales and service totheir customers, says Brian MacLean, executive vice president ofclaims services for Travelers.

ECN allows agents to view details of claims directly from aclaims roster, receive financial information for claims, and managecontent with various tools for sorting, summarizing, and printing.Access to the agency portal can be gained through www.travelers.com.