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

Critics have said that complex mathematical models using game theories to assess terrorism risk are still just educated guesses in the post-Sept. 11 world. Asked about such complaints, RMS Chief Executive Hemant Shah told National Underwriter, “while terrorists are malevolent, they are not irrational.”

“The goal of this partnership is to offer tools and insights to policymakers. Terrorism is unlike any of the catastrophic events that we tried to model in the past. This is clearly challenging, but it is possible to offer informed insights into likely targets and 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-term challenge for the insurance industry.

“We have been working with RAND for some time now, and this new relationship formalizes a long-term, multi-year collaborative research agenda. I believe that by partnering with RAND, we can help the insurance industry better understand this peril now and in the future,” he said.

“Since the release of our terrorism risk model in September, we have been focused on meeting the needs of our clients in the insurance and financial services sectors, assisting them to price their policies and manage their accumulations of risk, ” Mr. Shah said. “ By furthering our collaboration with RAND, and by using our models to support the center's research agenda, we feel we can also make a real contribution to the formation of public policy.”

Robert Reville, director of the RAND Institute for Civil Justice, added that the research center will provide policymakers with better tools to manage terrorism risk, and design policies and programs for compensation to terrorism victims.

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

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

He said RMS had applications beyond what were provided to RMS clients in the insurance industry that RAND felt “could potentially help policymakers, Congress and the Department of Homeland Security, 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 serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.