RAND, RMS Jointly Set Up Terrorism Risk StudyCenter

RAND and Risk Management Solutions Inc. are teaming up to starta research operation to study terrorism risk and how to compensatevictims of terrorism attacks.

The goal, they said, is to help develop more-informed publicpolicy decisions on managing terrorism risk in the UnitedStates.

Research results from their collaborative efforts, they said,will be released through a series of peer-reviewed publications aswell as lectures, conferences, briefings to policymakers, andtestimony to government agencies and legislatures.

The new center will be based in the Santa Monica, Calif.,headquarters of RAND–a non-profit think tank. The center, it wasexplained, will analyze terrorism risk using mathematical modelsdeveloped by RMS, a Newark, Calif.-based provider of products andservices for catastrophe risk management.

Critics have said that complex mathematical models using gametheories to assess terrorism risk are still just educated guessesin the post-Sept. 11 world. Asked about such complaints, RMS ChiefExecutive Hemant Shah told National Underwriter, “whileterrorists are malevolent, they are not irrational.”

“The goal of this partnership is to offer tools and insights topolicymakers. Terrorism is unlike any of the catastrophic eventsthat we tried to model in the past. This is clearly challenging,but it is possible to offer informed insights into likely targetsand weapons they will use as well as the frequency of attacks,” Mr.Shah said.

Mr. Shah said he sees the issue of terrorism risk as a long-termchallenge for the insurance industry.

“We have been working with RAND for some time now, and this newrelationship formalizes a long-term, multi-year collaborativeresearch agenda. I believe that by partnering with RAND, we canhelp the insurance industry better understand this peril now and inthe future,” he said.

“Since the release of our terrorism risk model in September, wehave been focused on meeting the needs of our clients in theinsurance and financial services sectors, assisting them to pricetheir policies and manage their accumulations of risk, ” Mr. Shahsaid. “ By furthering our collaboration with RAND, and by using ourmodels to support the center's research agenda, we feel we can alsomake a real contribution to the formation of public policy.”

Robert Reville, director of the RAND Institute for CivilJustice, added that the research center will provide policymakerswith better tools to manage terrorism risk, and design policies andprograms for compensation to terrorism victims.

“When RMS was developing its terrorism risk model, it approachedRAND to try to work with some of the terrorism experts we had. RANDhas been in the forefront of research and analysis on terrorism forthree decades, including investigating the origins and developmentof terrorism. We have a great deal of expertise in-house,” Mr.Reville said.

“We were interested in incorporating terrorism vulnerabilityinto their model, and we started to work together, and we saw thevalue of our collaborative efforts,” explained Mr. Reville.

He said RMS had applications beyond what were provided to RMSclients in the insurance industry that RAND felt “could potentiallyhelp policymakers, Congress and the Department of HomelandSecurity, and we decided to collaborate further.”

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, January 6, 2003.Copyright 2003 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.