TIRP assesses the level of threat and vulnerability of entities to potential acts of terrorism and calculates the risk of loss from those acts.

Robert Seiden, president of Fortress, noted that insurance companies have been struggling with how to calculate terrorism insurance premiums. The federal Terrorism Risk Insurance Act requires insurers to offer the coverage, but provides no guidance on the premiums to be charged.

“TIRP runs each entitys profile through a scoring system,” Mr. Seiden explained. “That profile is put together by former law enforcement and security officials who personally visit and inspect the site to be insured.”

According to Mr. Seiden, this objective rating method protects insureds from being overcharged and protects insurers from being accused of unlawful price gouging.

“You can't class-rate terrorism coverage,” Mr. Seiden added when stressing the need that each risk be visited by an inspector. He described the three “levels” of properties Fortress inspects:

Level One consists of the small-to-medium commercial properties that are inspected by former law enforcement officers. Fortress maintains a network of hundreds of such officers throughout the United States.
Level Two is an intermediate level, which may be assigned to trained security experts.
Level Three properties have the highest exposure. Mr. Seiden mentioned the Statue of Liberty, the Empire State Building (where Fortress has its headquarters) and Yankee Stadium as examples of such properties in the New York area.

Each client gets individualized attention and a thorough review of its operations. “A hot dog truck can be a greater risk than a gasoline truck, if that hot dog truck is making a delivery to a stadium,” Mr. Seiden said.

AIR Worldwide Corporation, an Insurance Services Office company based in Boston, Mass., released its Terrorism Loss Estimation Model last September. That model attempts to assist insurers in meeting their TRIA obligations by developing the loss costs used to calculate premiums.

Jack Seaquist, AIR's project manager for terrorism modeling, said that the firm takes “a comprehensive look at the full range of terrorist attacks that might occur, looks at areas that may be targeted, and determines the potential of being hit by conventional weapons, weapons of mass destruction and other means.”

“AIR then models those possible events for frequency and severity through an expert opinion approach that estimates terrorist group intentions and preferences for various categories of targets,” Mr. Seaquist explained. The experts consist of a highly-credentialed team with national and international counter-terrorism experience.

“A database is maintained that includes elements from a wide range of data sources that affect terrorism risk,” Mr. Seaquist said. The database consists of over 300,000 potential targets, including commercial, educational, religious and government facilities. There is also a subset of “trophy” targets, which have a higher probability for a major attack.

AIR uses “what if” scenarios and software that permits it to simulate attacks involving chemicals, biological agents, radiation and other weapons.

Threats posed against properties and entities by domestic extremists, formal international and state-sponsored terrorist organizations, and loosely-affiliated extremist groups are taken into account by the AIR model.

Not only does AIR look at the overall distribution of attacks that may be directed at a property, it also considers exposures from nearby properties, Mr. Seaquist added. “The model takes an engineering-based approach to estimating building damage from weapons effects on both the target and surrounding buildings. These effects can include pressure and shock waves, fire, and falling debris.”

AIR is in the process of partnering with a firm that will permit it to perform site-specific analyses in the near future, according to Mr. Seaquist.

Newark, Calif.-based Risk Management Solutions Inc. is also a major force in terrorism modeling. RMS develops software that allows insurers to calculate the probability of catastrophes, including terrorist events.

“Data was collected from terrorism experts, including those who had personal contact with Al-Qaeda members, to create a probability model of potential terrorist attacks using mathematical formulas of game theory,” explained Peter Ulrich, the managing director of enterprise risk management for RMS.

From a list of over 200,000 potential terrorist attack sites, RMS identified 2,400 “priority targets,” mostly in major U.S. cities. In the RMS model, the size, economic importance, symbolic value and name recognition of the city are considered in determining their potential as locations for terrorism.

Selected targets within these cities are then prioritized according to the “utility” an attack would have to various terrorist organizations. “The terrorism exposure of any specific location is calculated based, among other things, on its proximity to one of these 2,400 targets,” Mr. Ulrich noted.

Understanding and analyzing terrorists' “motives and mindsets” are also part of the analysis, as are security, logistics, and technical data on toxic releases, how diseases can be spread, how far a plume travels, and decontamination processes.

Scenarios involving 16 distinct “attack modes” were analyzed under the RMS model, including those involving radiological, biological and chemical agents.

ABS Consulting, based in Houston, Tex., is among the firms in the terrorism risk assessment field. The company's SafeState services include terrorist risk evaluation, emergency preparedness, employee training and business continuity planning.

Clients have included highly-vulnerable properties such as the FBI building in Washington, D.C., nuclear power plants, airports, stadiums and national monuments, noted Doug Konetzni, vice president of sales. “For the FBI building, one of the things we did is put up adhesive glass so people would not be injured by flying glass in an explosion,” he pointed out.

Mr. Konetzni also described an engagement for a California power company, in which ABS engineers were called upon to determine what would happen if an airplane going 350 miles per hour crashed into a nuclear power plant. “Our engineers concluded that it would not penetrate the core.”

ABS uses risk and catastrophic loss modeling to estimate terrorism exposures. For instance, the company can model the plume resulting from the explosion of a “dirty bomb” in a designated area. Other risk assessments, using scenario-based modeling and proprietary software and simulation tools, are available, Mr. Konetzni noted.

Reproduced from National Underwriter Edition, April 21, 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.