In the wake of apparent terrorist bombing attacks on the London transportation system, one extreme-risk modeling firm is pointing out that, given recent history, an attack on London was not entirely unexpected.
"I'm not the CIA or the State Department," cautioned Tom Larsen, senior vice president of EQECAT Inc., based in Oakland, Calif., "but we've seen so many threats going on [against] London and there have been a number of [terrorist-related] arrests there, pretty much continuing since 9/11."
As to how this attack changes the picture for risk modelers, Mr. Larsen notes that, given the existing risk climate before the bombings, "it's inconclusive right now to say that the risk has really changed. It was there; now we've just realized one of the potential outcomes."
This attack struck close to home for EQECAT, whose London office is located near the Liverpool Station, not far from where one bomb exploded, said Mr. Larsen. "Everyone is okay," he noted. "We don't know of any tragedies yet."
The key question for risk modelers, he said, is whether or not this attack was part of some new paradigm or simply a continuation of the old one.
"At this point it doesn't look like [the paradigm] has changed," he observed. "We've always known this was a risky area." He noted that the coordination of the attack and the small size of the bombs are consistent with other recent terrorist attacks.
Mr. Larsen added that the event would increase terrorism awareness in the U.S., where the Terrorism Risk Insurance Act (TRIA) expires Dec. 31.
A bill introduced several months ago by Sens. Robert Bennett, R-Utah, and Christopher Dodd, D-Conn., would extend TRIA for 2 years while Congress decides who should pay for damage caused by terrorist attacks in the future.
"Here, people see that [the London] attack could have been in Baltimore or New York," he noted. "Insurers who continue to accept terrorism risk will rely more on models, because the industry seems to be looking quantitatively at risk. Terrorism risk is extremely subjective. There is no [geological] fault that is waiting to blow. The uncertainty in insuring this is what is the severity of the worst event. What we saw today; that's a small one. What would a bigger one--a nuke--look like?"
He concluded that "there will be a marketplace for terrorism insurance." The key, he added, is putting some "certainty" into the process. "Models provide a little more certainty."
Mr. Larsen predicted that insurers will have "a lot more need for models." While the models can't predict exactly what will happen, they can pinpoint the relative likelihood of various weapons being used, based on opportunity and past targets.
"We can judge from the past and say that if the future is like the past, we can add that certainty for our clients," he said.
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