Managing Terrorism Risk

6%

47%

TM

Acknowledgements
Risk Management Solutions gratefully acknowledges the input of many world class specialists who acted as consultants and reviewers in the development of the RMSTM U.S.Terrorism Risk Model.These include: Dr. Rohan Gunaratna Dr. Magnus Ranstorp Head of terrorism research, Institute of Defense & Strategic Studies, Singapore Director, Centre for the Study of Terrorism and Political Violence, University of St. Andrews Vice President for External Affairs and Director, RAND,Washington D.C. Director, RAND Public Safety and Justice Director, RAND Institute for Civil Justice Associate Economist, RAND and Faculty Research Fellow, National Bureau of Economic Research Senior Physical Scientist, RAND Senior Defense Policy Analyst, RAND Economist, Federal Reserve Bank of New York Associate Physical Scientist, RAND Associate International Policy Analyst, RAND Senior Policy Analyst, RAND RAND Senior Analyst, RAND Director, Global Consultancy Operations, Janes Information Group Business Development Director, Janes Information Group Consultant and Project Manager, Janes Information Group Janes Information Group Senior Military Advisor, Janes Information Group Janes Information Group Janes Information Group Hazard Management Solutions Ltd., Editor of TRITON terrorist activity database Professor of Nuclear Engineering, University of California at Berkeley, and member of the Advisory Committee on Nuclear Facility Safety, U.S. Department of Energy Consultant, Janes Information Group Professor of Management Science, Stanford University Graduate School of Business Consulting Engineer Senior Engineering Analyst, Autodyn Terrorism threat from Al Qaeda and associated groups Terrorism threat from Islamic militant groups and political violence in the Middle East Terrorism risk in the U.S. Homeland security Terrorism compensation & liability Probabilistic modeling and economics of terrorism risk Loss modeling and the defense and control of terrorism weaponry Chemical, biological, radiological, and nuclear weapons in terrorism Economics of terrorism insurance Emergency response to terrorism incidents Historical data on terrorism attacks Terrorism, intelligence, and law enforcement Defense and security at targets Systems analysis research Attack technology, logistical burden, and red teaming analysis Terrorism, intelligence, and news analysis Red teaming, site security and logistical burden Weapons systems and unconventional attack operations Site security Security survey of New York skyscrapers Security survey of New York skyscrapers Attack technology and terrorist activity Nuclear power plant safety against terrorist attack

Dr. Bruce Hoffman Dr. K. Jack Riley Dr. Robert Reville Dr. Darius Lakdawalla

Dr. Brian Chow Dr. Greg Jones Dr. George Zanjani Dr. Brian A. Jackson Dr. Kim Cragin Dr. Gregory Treverton Dr. Lois Davis James Quinlivan Pete Baxter Michael Dell Mark Mateski David Kuhn Charles Heyman Paul Mahoney Laura Dake Roger Davies Dr.William Kastenberg

Rich Balzano Dr. Lawrence Wein Mark Sauer Malcolm Cowler

Nuclear power plant operations and security Bio-terrorism attacks and emergency response Industrial facility targeting Use of computational fluid dynamics for blast modeling

The RMSTM U.S. Terrorism Risk Model

The threat of terrorist attack will continue to pose a major risk to the insurance industry into the near future.This publication describes how the terrorism landscape is changing, and how such changes are reflected in version 2 of the RMS U.S.Terrorism Risk Model. It surveys the opinions of the team of RMS modeling specialists and external experts, providing background to the key methodologies and assumptions that underlie the RMS model. The RMS U.S.Terrorism Risk Model provides a comprehensive look at terrorism risk in the U.S., quantifying risk from both foreign and domestic terrorist organizations. It supports multi-line risk analysis for both certified and non-certified events impacting property, business interruption, workers compensation, life, personal accident, and accidental death and dismemberment insurance. The model employs state-of-the-art methods for quantifying the impact of a range of potential terrorist attacks, from conventional weapons to chemical, biological, radiological, and nuclear (CBRN) weapons.These attack modes are modeled at potential terrorist targets across the U.S. Attack frequency includes consideration of the potential for multiple synchronous attacks -- a signature of Al Qaeda. Manage Portfolio Risk Generate aggregate exceedance probability (AEP) loss distributions by line of business and in total Identify most critical terrorist attack scenarios for your portfolio Analyze key drivers of loss by account, location, target type, and city Quantify the risk of fire losses following terrorist attacks for policies without terrorism coverage

Probabilistic loss analysis provides key statistics such as return period losses, average annual loss, and standard deviation.

Examine What If? Scenarios

10% 9% Probability of Exceedance Expanded Capabilities Expected Reduced Capabilities

Version 2 of the RMS model includes alternative Risk Outlooks, representing different underlying assumptions about the development of the terrorist threat and attack frequency.

8% 7% 6% 5% 4% 3% 2% 1% 0% Loss

Consider alternative Risk Outlooks to understand sensitivity of results to varying hazard assumptions Evaluate alternative treaty reinsurance or securitization structures for risk transfer Analyze TRIA impact under various take-up rates Examine impact of exclusions (e.g. CBRN) on re/insurance offerings

Implement Underwriting Process Develop loss costs by line of business Evaluate and price alternative layers for excess policies or reinsurance treaties Capture key parameters for risk scoring Design and implement underwriting guidelines to diversify portfolio risk

High-resolution terrorism risk maps provide underwriting guidance in major cities.

The New Al Qaeda

While Al Qaeda has suffered the loss of operational leaders and destruction of its traditional bases in Afghanistan, its intention to attack the U.S. and its allies has not diminished.To survive the global hunt, Al Qaeda has rapidly evolved, adapting its operational and support activities, including its fund raising, communication, and even its targeting practices. Al Qaeda is trying to compensate for its losses by turning to groups and members it has trained to join the fight. It provides strategic and tactical direction to three dozen associated groups in Asia, the Middle East, the Caucuses, and the Horn of Africa that share the Al Qaeda ideology of a universal jihad.Throughout the 1990s, Al Qaeda and Taliban training camps in Afghanistan trained 70,000 to 120,000 Muslim youth in guerrilla and terrorist tactics to fight in the Philippines, Indonesia, Kashmir, Bosnia, Kosovo, Chechnya, China Algeria, Egypt, Jordan,Yemen, and other regions. As the international community turned a blind eye, Afghanistan became a terrorist Disneyland. Inspiring Other Groups In many ways, Al Qaedas greatest success has been to penetrate local Islamist groups waging territorial struggles by co-opting their leaders and using those organizations to fight both at a domestic and an international level. Despite being the most hunted terrorist group in history, Al Qaeda remains a formidable threat to international security. Since 9/11, over 100 attacks have been aborted or disrupted. Nonetheless, as recent bombings around the world have demonstrated, the threat has moved beyond Al Qaeda. Its regional associates are as lethal as their parent group.They have learned and will increasingly use Al Qaeda martyrdom
2

tactics such as hijacking and crashing aircraft, contact poisons, anti-aircraft weapons, and other techniques to inflict mass fatalities on their enemies. Despite the arrest of several thousand Al Qaeda members and key supporters in more than a hundred countries, the network has been able to replenish its lost rank and file and continue the fight. Although Al Qaeda is less able to mount coordinated multiple suicide attacks on the scale of 9/11 inside the U.S., it is still capable of carrying out medium scale attacks. Restricted Capability
AP Wide World Photos

There are three reasons why there has not been another major Al Qaeda attack inside the U.S. Increased human vigilance Unprecedented law enforcement, security, and intelligence cooperation The worldwide hunt for Al Qaeda, denying the group time, space, and resources to plan and mount spectacular attacks As long as Western governments can keep the public alert; share information with Middle Eastern, Asian, and other governments; and maintain an active global coalition against terrorism, terrorist groups and their support bases will weaken. The fight against terrorism is long and hard. Historically, terrorist groups have an average life span of 13.5 years. It is essential to build counter-terrorist structures and train personnel to meet the current and future threat. Al Qaeda is a global organization and no single country can fight it. Al Qaeda threatens military, diplomatic, and civilian targets and is capable of operating in the air, on land, and at sea. A wide range of security measures are necessary to protect against further attacks. Governments need to enlist the support of educational and religious institutions and community

Terrorist attacks, such as the bombing of the Marriott Hotel in Jakarta, Indonesia in August 2003, demonstrate that the intent to attack U.S. interests is still strong.

leaders to build an ethic to combat the use, misuse, and abuse of religion in Al Qaedas recruitment and support building.To manage the threat posed by Al Qaeda and its associate groups, a multi-faceted and multi-national effort is paramount.

Dr. Rohan Gunaratna giving evidence to the National Commission on Terrorist Attacks Upon the United States, (NBC News, July 2003). Dr. Gunaratna is the head of terrorism research at the Institute of Defense and Strategic Studies in Singapore. He is also author of Inside Al Qaeda: Global Network of Terror and is a senior research fellow at the Centre for the Study of Terrorism and Political Violence, University of St.Andrews, Scotland.

Emerging Trends for Terrorism Risk

We are in something of a transitional state, with our counter-terrorism measures becoming stronger while Al Qaeda constantly struggles to adapt itself to a new, less congenial operational environment. During this period of adaptation, there could be continued smaller scale attacks and, as has been their recent operational pattern in attacks overseas, mostly against accessible, soft targets. As military and government targets increase their protection levels, softer targets such as economic and commercial targets become more attractive -- a fact that has major implications for the insurance industry. Trend Towards Soft Targets In addition to spectacular strikes, developments that have affected Israel over the past 18 months provide some important clues with respect to future terrorist trends: not just as models for potential future Al Qaeda operations, but also as possible templates for attacks by other militant Islamic terrorist groups. In this regard, there are at least four potentially significant developments: The sustained campaign of suicide bombing that has convulsed Israel since the start of the Second Intifada in September 2000. Although suicide bombings have been used since 1993, fully 70 percent of all such incidents have occurred during the past 20 months and have been responsible for almost half of the 700 people killed. The attempt to bomb a large gasworks in a Tel Aviv suburb that would have a potentially catastrophic impact on the city. The use of SAM-7 surface-to-air missiles in an attempt to shoot down a charter Israeli passenger aircraft as it took off from the Mombasa, Kenya airport. The growing use of poisons and diseased suicide bombers, and

International Terrorist Threats

Al Qaeda & Associates

Other Foreign Terrorist Organizations

Domestic Terrorist Threats

$
<$5m Micro-Terror Attacks Insured Non-certified Acts Macro-Terrorism

The RMS model provides a comprehensive view of terrorism risk, quantifying loss across a spectrum of micro- and macro-terrorism attacks, from both domestic and foreign terrorist groups.

increased interest in chemical warfare among some Palestinian groups. Given that these techniques have no unique operational or technical requirements, their ease of implementation in the U.S. cannot be discounted. Indeed, one has to ask whether American or any European society can easily bear any one of those types of attacks. Potential Social Disruption One can conjure up highly disruptive possibilities that fit uncomfortably within the spectrum of the technological capabilities of terrorists. Convulsing our society in the way it has been attempted in Israel is a real possibility.This can be achieved not only by the use of weapons of mass destruction, the targeting of infrastructure, and mass casualty events but also more incidents that have far-reaching psychological repercussions on society, such as suicide bombings, killings, and assassination of leaders. This is a deliberate and calculated infliction of sharp, almost unbearable pain that is designed to bring society to its knees.

Insurance Implications The insurance implications of these less spectacular types of attacks would be more frequent, smaller losses that would mount up over time. The biggest impact on the insurance industry and other businesses would be a destabilizing of financial confidence and a period of economic hard times.

Dr. Bruce Hoffman is the vice president for external affairs and director of RAND in Washington D.C. He is also the author of Inside Terrorism and editor-in-chief of Studies in Conflict and Terrorism, the leading scholarly journal in the field of terrorism research.

Threats from Other Foreign Terrorist Organizations

There are 35 named groups on the U.S. State Departments list of designated foreign terrorist organizations. At least five are active and have a known presence in the U.S. Al Qaeda Hizballah Al-Gamaa Al-Islamiyya, an Egyptian Islamic group Kahane Chai, a Jewish extremist organization Mujahedin-e-Khalq, a MarxistIslamic and anti-Iranian group Reviewing the capabilities and motivations of each group, the most serious threat is posed by Hizballah. Provoking Hizballah If U.S. foreign policy in the Middle East extends to changing the regime in Syria, military intervention in Iran, or overt special operations in Lebanon, then retaliation may involve terrorist attacks by Hizballah within the U.S. Hizballah already has an established presence in the U.S. and has a known capability for successful attacks. Hizballah is one of the most renowned Islamist movements in history. Its notoriety as a terrorist organization, as well as a political party in Lebanon, arose from its kidnapping of over 80 westerners in the 1980s, the attack on the U.S. embassy in Beirut in April 1983, and the bombing of the U.S. Marines barracks in Beirut in October 1983. The reputation of Hizballah in guerrilla warfare has been sustained by its 18-year military conflict with Israel in South Lebanon, which culminated in Israeli withdrawal in May 2000; an event which earned the esteem of the Islamic world. Proportionate Retaliation Unlike Al Qaeda, which espouses the virtue of maximum violence, Hizballah advocates the principle of proportionate violence. As explained by one Hizballah spokesman, In our
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Courtesy, U.S. Department of Defense

Hizballah has been responsible for a number of attacks against U.S. interests including a massive truck bomb attack in 1996 on the Khobar Towers military housing complex in Dhahran, Saudi Arabia.This attack was one of the largest terrorist bombs ever detonated.

religion it is not something desirable to kill an enemy who is not about to kill you. If Syrians or Iranians are killed during the process of regime change, the consequence is likely to be proportionate retaliation. Associated terrorist attacks within the U.S. may take the form of assassinations, bombings, and the use of military weapons.The measured approach toward political violence is reflected in the attitude toward suicide missions. Although suicide missions were originally justified and sanctioned by Hizballah, more conventional forms of warfare have been conducted since the mid-1980s. Compared with spectacular, maximum-destruction terrorist attacks by Al Qaeda, attacks by Hizballah are expected to be more conventional militarily, and generally result in fewer casualties and lower levels of economic loss. The modus operandi of Hizballah reflects the cool-headed rationality of its leader, Sheikh Hassan Nasrallah, who has assembled a significant political power base in Lebanon.

They demonstrate the principle of proportionality in their military engagements on the Israel-Lebanon border, responding to attacks with measured retaliation calculated to stop short of triggering large counter-responses. While the chances of a Hizballah strike on the U.S. are small, much will depend on how the Middle East situation develops during 2004.

Dr. Magnus Ranstorp is the director of the Centre for the Study of Terrorism and Political Violence at the University of St. Andrews. He specializes in the study of political violence and terrorism in the Middle East, particularly the growth and influence of fundamentalist Islamist movements. His latest book is Hizballah in Lebanon:The Politics of the Western Hostage Crisis.

Domestic Terrorism Threats in the U.S.

The FBI defines domestic terrorism as the unlawful use, or threatened use, of force or violence by a group or individual based and operating entirely within the United States or its territories without foreign direction in furtherance of political or social objectives. Domestic terrorism in the U.S. over the past half-century has been characterized by a series of waves, reflecting the waxing and waning of campaigns by different political groups. Active U.S. domestic terrorist organizations currently can be divided into right wing, left wing, and special interest extremist groups.

Left Wing Terrorist Groups

Average Annual Loss

Risk Classes
Commercial

AP Wide World Photos

The capability for right wing extremists to launch deadly attacks was demonstrated in the 1995 bombing of the Murrah building in Oklahoma by Timothy McVeigh.

Right Wing Extremists Right wing groups are characterized by opposition to federal taxation and regulation, race hatred, and antiinternationalism.Their eclectic diversity provides a political refuge for paramilitary survivalists, tax protesters, white supremacists, NeoNazis, and supporters of the Christian Patriot and Militia movements.These groups have shown themselves capable of launching destructive bombings, arson attacks, and even unsuccessful attempts to attack petrochemical and nuclear facilities.

Left wing groups are Government typically characterized by Religion radical socialist doctrine Education with the goal of bringing Medical about political change Industrial through revolution. Left Recreation wing terrorist activity Residential Agriculture peaked in the early 1970s during the Vietnam War. Since the demise of the RMS differentiates the risk of domestic terrorism across nine Soviet Union, left wing distinct risk classes. terrorism is no longer Domestic Terrorism Risk state-sponsored, and has fallen to a Modeling low level. Anti-capitalist and antiglobalization demonstrations provide The RMS terrorism model uses current opportunities for left wing historical data from pre and post inspired riots and acts of mass 9/11 to model the full spectrum of violence. domestic groups that currently threaten the U.S. Each domestic Special Interest Activists threat group is geographically and ideologically distinct and has been Special interest groups typically seek analyzed independently to provide an to resolve, through direct action, integrated view of the total risk from specific issues such as animal rights, domestic terrorism. Users can derive abortion law, and environmental average annual loss for a coverage by protection.The Animal and Earth location, policy, or account, and Liberation Fronts are among the most obtain a portfolio EP curve and active extremist groups in the U.S., relevant risk management statistics. but their ultimate objective is to promote animal rights and ecological issues, so their attacks are deliberately planned to cause only moderate loss.The most destructive practice of these special interest groups is the use of improvised incendiary devices to commit arson.

Historical terrorist activity, the number of militias, and key crime statistics give an indication of right wing extremist activity across the U.S.

Dr. David Miller is senior engineer at RMS, responsible for implementation of the probabilistic framework of the terrorism model. Dr. Miller has a Ph.D. in experimental physics from the University of California at Berkeley.

Parameterizing the Evolving Threat

Terrorists are noted for adaptive learning, and risk modelers accordingly also need this facility, because the terrorist threat is constantly evolving. A review of recent terrorism activity provides an empirical basis for model calibration and updates in version 2 of the RMSTM U.S.Terrorism Risk Model. Increased Risk at Soft Targets A distinctive feature of the RMS model is its use of game theory. Game theory predicts that, as prime targets are hardened, rational terrorists will tend to substitute lesser, softer targets.This prediction echoes the testimony of the CIA director, George Tenet, in February, 2001, as security is increased around government and military facilities, terrorists are seeking out softer targets that provide opportunities for mass casualties. In terrorism talk, this is called target substitution. Since September 2002, some significant examples of target substitution have occurred. A notable instance was the holing of the French oil tanker, Limburg, off the coast of Yemen.The terrorists admitted that their original target had been a U.S. navy frigate, but they were happy to strike the softer commercial target, because it was scheduled to supply the U.S. fifth fleet. Explicit admission of this soft target strategy has since come from Khalid Sheikh Mohammed, the Al Qaeda chief of military operations, who was arrested in March 2003. Reduced Chances of Al Qaeda Strike Following the path of least resistance is a law of nature. It also happens to be a guiding principle of Al Qaeda, and influences its choice of weaponry.

AP Wide World Photos

Concrete bollards in front of theWhite House protect against truck bomb attacks. Government buildings and military bases have seen significant improvements in security measures.

Trucks can usually get access to many office buildings because security measures are often less stringent in private buildings, making them softer targets.

The terrorist preference for conventional bombs and ready-to-use military weapons has been demonstrated over the past year in the attacks in Bali, Mombasa, Riyadh, Casablanca, and Jakarta. Each of these target cities has tourist name recognition, another notable aspect of the Al Qaeda modus operandi. The absence of any spectacular Al Qaeda attacks within the U.S. over the past year is consistent with risk estimates in version 1 of the RMS model. Given the increased global counter-terrorism pressure and a correspondingly high interdiction rate for planned attacks, version 2 of the RMS model indicates a yet smaller chance of a spectacular Al Qaeda attack succeeding in the U.S. in 2004. However, with possible U.S. intervention in Syria and Iran, which may be covert or clandestine, there is an additional risk of these states sponsoring Hizballah to make a retaliatory attack against the U.S. homeland. In contrast with Al Qaeda, Hizballahs modus operandi involves the concept of proportionate response, so a Hizballah attack would typically be less damaging than one perpetrated by Al Qaeda. In particular, CBRN attacks by Hizballah are very unlikely.

Even for Al Qaeda, the possibility of a CBRN attack is somewhat more remote than last year, given the effectiveness of the global security crackdown.The softening of weapon destructiveness and lethality is mirrored in a softening of target choices: more targets in lesser ranked U.S. cities; more infrastructure targets, such as bridges, rail stations, and gas stations. Success by counterterrorism forces in disrupting the Al Qaeda network is straining its operational capability, and so mitigating the terrorism risk for insurers.

Dr. Gordon Woo is the chief architect of the RMS terrorism model and author of The Mathematics of Natural Catastrophes. His expertise in game theory stems from his tenure in the Society of Fellows of Harvard University.

Can Terrorists Achieve CBRN Capability in 2004?

To perpetrate a successful one-ton truck bombing attack, a terrorist group needs many months to plan, tens of thousands of dollars worth of equipment, and a team of people that includes well-trained munitions experts. These resources, although substantial, are within the familiar range of operations by terrorist groups. More costly and complex is the logistical burden of carrying out an attack using technologies of CBRN weapons.The resources and skills needed are highly specialized and rare.The processes required to produce biochemical weapons require specialized and expensive laboratory equipment, and the professional skills of micro-biologists. Amateurs could produce limited amounts of nasty cultures in their kitchen sinks -- and attacks by these can be highly disruptive -- but achieving mass casualties requires a large scale and professional operation.The logistical burdens of large scale CBRN attacks tend to be an order of magnitude higher than many conventional attacks. Building a CBRN Capability We know that our adversary has a strong interest in acquiring CBRN weapons. Al Qaeda is known to have attempted to purchase radioactive materials and has experimented with deadly gases. It has made statements threatening the deaths of four million Americans and has no moral qualms or ideological constraints on mass killing. The obstacles to obtaining CBRN capability are two-fold. Firstly, specialized materials and equipment are required. Radiological weapons need radioactive source material. Biological weapons require initial cultures. Chemical weapons need special ingredients and reagents. All of these can be obtained, at a price, from somewhere.

Bomb - 1 Ton
Skills Personnel
0 5 10 15 20 25 30 people

Advanced Guerilla Skills

Cost Time

0 0 1 year

$500,000 2 years

$1m 3 years

Total Logistical Burden:

235

Anthrax - Medium, Outdoor

Skills Personnel
0 5 10 15 20 25 30 people

Specialized Skills

Cost Time

0 0

$500,000 1 year 2 years

$1m 3 years

Total Logistical Burden:

2,390

The logistical burden of mounting a successful biological attack can be many times larger than an attack with a conventional bomb. The logistical burden of each attack mode in the RMS model has been analyzed using red teaming techniques.

Secondly, and most critically, is the skill and knowledge required to produce and assemble weapons that work. People with the know-how are the key.These people are not commonly available within the ranks of Al Qaeda, but they and their knowledge are being sought. Captured documents show that Al Qaeda has recruited competent scientists, including microbiologists and technically skilled young graduates from colleges. Mounting evidence shows that a CBRN skill base is being developed. Preventing CBRN Production Al Qaeda is clearly establishing an R&D team, but there is no evidence that they have yet achieved any specific chemical or biological production. Our experts estimate it could take between nine months to three years for a technically proficient R&D team to become an effective production unit. During 2004 there is a small but significant chance that CBRN capability will be achieved. It is a probability that will grow over time,

unless production capability can be disrupted and prevented. Efforts to detect, trace, and interdict preparations are paramount. Ultimately, however, U.S. intelligence analysts believe we will be lucky to interdict these preparations. They have prepared the public and agencies for an attack. In June 2003, the U.S. government stated that there is a high probability of CBRN attack within 2 years. Although an unpleasant prospect, the insurance community and other risk managers would be prudent to incorporate this scenario into their medium term planning.

Pete Baxter is the director of Global Consultancy Operations at Janes Information Group. Janes Information Group publishes over 200 titles annually, covering areas of military and security intelligence.

The Cost of Security

The security landscape has changed substantially in the U.S. over the past year, including: The formation of the Department of Homeland Security Significant advances in aviation security Major improvements at ports and for commercial shipping inspection The rapid establishment of a Terrorism Threat Integration Center Stepped up levels of civil defense and public preparedness, including the alert system and a readiness public service campaign These and other elements have helped prevent attacks inside U.S. borders.This security environment is important because it increases the terrorists logistical burden by impairing reconnaissance, fundraising, travel, and weapons acquisition. It constrains terrorists to reduce their activity, or to mount smaller operations against softer targets. Security at Potential Targets Public and private entities have invested heavily in security. Common procedures include stand-off barriers to prevent or mitigate vehicle bomb attacks, increased security patrols, and access controls for visitors. Specialized security (such as profiling, electronic sniffers, and biometric identification) is being used at certain key government buildings, critical infrastructure, and high visibility events. Sensors and other CBRN detection technologies are being tested but may take years to deploy.

Change in Security
Major Government Buildings Passenger Airline Anti-hijacking Military Bases (U.S.) Nuclear Power Plants Skyscrapers Airports Stadiums Industrial Facilities
AP Wide World Photos

Oil and Gas Industrial Facilities Airport Take-off Zones (SAM) Central Business District Hotels & Casinos Subway and Train Stations Tourist Attractions Shopping Centers & Malls Major increase in security Significant increase in security No effective increase in security

A simulated dirty bomb attack in Seattle (May 2003) tested emergency response systems and top officials reactions. Events like these have improved public awareness and preparedness.

Since terrorists research their targets to find vulnerabilities, the uneven implementation of security measures, and the measures differential effectiveness against different attack modes may change targets relative likelihood of being attacked or the relative likelihood of the weapon used in the attack. How Will Security Change in the Next Year or So? Much of the new security environment is here to stay, at least for the foreseeable future. But there is ongoing and legitimate debate about the appropriate level of spending for our protection. Given the fiscal environments in the public and private sectors, the relative concentration of targets, and the lack of any major incidents on U.S. soil, further large investments are unlikely.Within the scope of existing resources, key areas for policymakers to focus on include: Improving the integration of law enforcement into intelligence functions. Intelligence is key to detect and pre-empt attacks, and law enforcement is a valuable ally in domestic intelligence efforts. Improving personnel and cargo security at airports. Intelligence indicates that Al Qaeda remains interested in attacks using airliners. Although substantial progress has been made on securing the passenger side of airports, considerably less attention has been paid to securing the cargo that is shipped via commercial aviation.

Average change in security from 2002 to 2003 for different target types (consensus opinion of the RMS panel of experts).

Allocating resources based on effectiveness against risk. Immediately after 9/11 there was a natural emphasis on increasing security in every manner possible. However, as resources become strained, it is necessary to assess which investments can provide the most protection. The relatively long period since the September 11 attacks is not an indication that the risk has disappeared, as the patient terrorist waits for its targets to soften and become complacent. Policymakers will be challenged to maintain public awareness and security levels as the amount of time from the last successful attack in the United States increases.

AP Wide World Photos

Improvements to security systems in many areas have increased, making it harder to carry out terrorist attacks.
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Dr. K. Jack Riley is director of the RAND Public Safety and Justice and co-director of the RAND Center for Terrorism Risk Management Policy. For over a decade Dr. Riley has been a leader on terrorism policy research, including national and state vulnerability assessments; individual preparedness for terrorist attacks; airport, port, and border security procedures; domestic intelligence reform issues; and counter-terrorism resource allocation.

Understanding Targeting

Fundamental to the assessment and management of terrorism risk is the process that terrorists go through to select their targets. Al Qaeda and its associate groups have developed a highly systematic approach to selecting their targets. As more attack case studies emerge we see a process of research and evaluation for targets that fit the terrorists strategic and tactical objectives. The planning process for 9/11 has been pieced together from testimony, witnesses, and captured documentation. Following the preparation of an initial list of target candidates, a series of meetings and high-level approvals prioritized them into a short-list. Candidate targets that were considered -- nuclear power stations, gas stations, bridges -- were not as important as those finally selected to meet the criteria of impact, chances of success, and time and resource availability. Planned Attacks Other attacks on U.S. and allied interests overseas -- bombings, missile attacks, attacks on ships -- were also carefully planned. Criminal indictments against the perpetrators document the detail of the preparation for attacks, including alternative targets considered and the factors that can cause last minute switching of targets.Video footage of reconnaissance shows what features interest them. Even for lesser scale attacks, such as individual suicide bombings, the mind-sets of the bomber and the direction provided by the support team has emerged from interviewing failed bombers and forensic analysis of attacks that succeeded. Documenting the targeting process has provided an understanding of the utility of a target to an attacker.The prioritization of targets comes from the amount of economic damage, life

The identification of targets that would provide the highest utility to the terrorist simulates the decision-making that terrorist groups go through in their targeting.

loss, and disruption that would be caused, along with how well that target symbolically represents the cause of the terrorists grievance. City Prioritization The city where a target is located is an important consideration for a foreign terrorist that is motivated by anti-national sentiment.The philosophy of striking at the economic engines of U.S. prosperity and symbols of U.S. nationhood and leadership raises attack likelihood in major cities.The larger and more famous the city, and the more target-rich that city is, the higher priority it is to the terrorist. Spectacular attacks are likely to be prioritized in major cities, to maximize the terrorists political agenda. Choosing Targets The RMS target database uses these criteria to select and prioritize targets from the terrorists point of view. RMS researched several hundred thousand candidate targets across the U.S., prioritizing each target according to the city it is located in, the type of asset it represents, the potential for

economic and life loss, its symbolic value, and its level of security. Based on this method, some 3,400 targets across the U.S. have been selected for modeling specific attacks.These fall into 25 different categories ranging from government buildings and public infrastructure through to commercial and private property. Detailed data have been compiled about them to establish their utility to the terrorist, the likely level of security, and other factors that affect target hardness. The risk to the insurance industry and to the country as a whole depends on how these targets are viewed by the terrorist. Different targeting strategies, developments in the capabilities of terrorist groups, and changes in the relativities of target hardness all affect the risk. The RMS model recognizes that these factors change over time. It allows users to carry out sensitivity studies through the use of Risk Outlooks.These include an expected outlook based on our current analysis of the terrorism threat, as well as alternative outlooks reflecting plausible changes to the terrorism environment that would increase or decrease risk. In a fast developing field, this enables risk managers to make use of the latest intelligence in their terrorism risk management decisions.

Dr.Andrew Coburn is the chief knowledge architect at RMS, and is widely recognized as a leader in the science of catastrophe risk. He was project manager for the RMS U.S. terrorism model development and co-authored the RMS World Trade Center Disaster special report.

Quantifying Insurance Losses from Terrorist Attack

What kind of loss would terrorist attacks cause? To accurately model the impact of the full range of potential terrorist attacks, a detailed analysis is required of processes as diverse as explosions, aircraft impacts, fires, decontamination, diseases spread through populations by biological and chemical agents, missile technology, and other phenomena. Since the release of version 1 of the RMSTM U.S.Terrorism Risk Model, an extensive amount of research and development has gone into refining loss modeling for all methods of attack.This work has included advanced physical modeling such as the use of computational fluid dynamics (CFD) models to simulate the effects of explosions in urban environments. High-resolution building data has been used in this effort. Modeling has been brought down to a resolution of 50 meters for attack modes where there is a large variation of loss over a short distance. Additionally, extensive simulations have been performed for all attack modes in order to quantify the

Blast Pressure High

Low

In low density urban environments a bomb blast sends out symmetrical pressure waves that damage buildings further away from the blast.

In high density city centers a bomb blast has complex reflections and sheltering effects. Streets focus the blast and cause higher pressures and damage close in.

uncertainties in losses as well as the correlation of losses between locations in a given attack. Modeling Explosions in Cities There is an abundance of information available related to the physical processes associated with explosions. However, almost all testing and research has been concerned with the impacts of blast waves on individual buildings in the open, rather than in the shielded and complex surroundings of a city. Because most of the target-rich environments are in dense city areas, RMS has developed modeling techniques appropriate for the effects of explosions in a downtown urban environment. CFD simulation models help in understanding how a blast pressure wave progresses through street patterns, and between and around buildings.

The shielding effects of one building in front of another, and the focusing effects of blast reflection waves can cause damage and injuries in unexpected places. Districts of cities have different densities and building heights that affect the damage caused by explosions. RMS categorizes the city characteristics that affect bomb blast behavior for each target in the model. Detailed City Data A key component of this development effort has been the compiling of accurate representations of building layouts in urban areas. Unique building-specific data developed in conjunction with the Sanborn Map Company has addressed this need.With this data, we have built computer model replicas of downtown urban areas that are then analyzed using CFD models for a range of bomb sizes.These simulations provide data on the differences in blast wave propagation when comparing dense versus sparsely built up areas, and in both cases provide detailed output related to the horizontal and vertical variations in pressure needed to develop vulnerability functions.

Damage footprint from a truck bomb in downtown Chicago, using detailed building data from Sanborn maps.
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Dispersion Modeling The effects of chemical and biological attacks depend on how the agents are dispersed in the atmosphere. Analytical models compute the dispersion of windborne contaminants spread across a city. Advanced dispersion models incorporate transient puff (single release) and plume (steady-state dissipation) releases across complex weather and terrain conditions to predict the toxic concentration and dosage suffered by the population. Contagious Disease Modeling To reflect a growing concern for the potential of bioterrorism attacks, RMS has introduced a contagious disease model that simulates the effect of smallpox attacks on the U.S. Disease is spread by social interaction and by population movement between cities. Different scenarios for the effectiveness of emergency response in treating, quarantining, and vaccinating the population to contain the outbreak are based on current policies and simulation exercises carried out by government authorities.
The weather conditions play an important part in the dispersal of an anthrax attack.The RMS model examines attack scenarios using multiple wind directions and windspeeds to determine spore deposition densities across a city.

Business Interruption Modeling The World Trade Center disaster resulted in unprecedented business interruption (BI) losses, due to the nature of the attack and its location in a major financial center.To understand the primary factors leading to BI losses in this event, RMS surveyed insurance companies regarding the nature of their claims. Extra expense factors such as relocation costs played a large role in exacerbating BI losses.

The RMS model quantifies direct BI including extra expense, as well as BI due to civil authority areas. Casualty Modeling Injuries to building occupants and population in the streets are critical elements of the effects of terrorist attacks. RMS models human casualties for workers compensation, life, health, and other lines. Six injury states are used to model casualties resulting from various attack modes.These injury states provide a more refined representation of casualty losses.

Urban population pools subject to smallpox spread in the RMS model.

Guy Morrow is head of science and engineering at RMS. He manages the development of all hazard and vulnerability modeling for the U.S.Terrorism Risk Model. He is a registered civil and structural engineer in the state of California.
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Application of Terrorism Models to Manage Risk

Since the watershed industry catastrophes of Hurricane Andrew in 1992 and the Northridge Earthquake in 1994, virtually all members of the insurance industry exposed to natural catastrophes have become proficient in the use of probabilistic catastrophe models to manage risk. While terrorism models can provide the same type of output, it is clear that the nature of this peril demands a somewhat different approach to managing the risk. Rather than rely solely on probabilistic loss analyses, prudent risk managers utilize multiple methods of assessing terrorism risk to triangulate on the magnitude and location of risk. Effective terrorism risk management requires answers to the following questions: Where are my greatest multi-line exposure concentrations, and are any of them near high-risk terrorism targets? Using benchmark deterministic terrorism scenarios (e.g. 2-ton truck bomb), are there any potential attacks that could result in losses greater than managements prescribed threshold? What cities, target types, or accounts are the key drivers of my portfolio loss? When considering full probabilities, what is the portfolio loss distribution?

Multi-line Accumulation
12%

The extremely focused geographic area impacted by certain terrorist attack modes highlights the need to capture high-resolution exposure information for multiple lines of business. Using a 400-meter radius (the range in which most damage occurs in typical conventional weapons attacks), users can identify areas of greatest multi-line exposure concentration anywhere in a portfolio, or around high-risk targets. The fact that 400 meters is significantly smaller than a typical ZIP Code underscores the need for highresolution building level geocoding.

Probability of Exceedance

11% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0%

Combined Cat Risk Terrorism Property Terrorism Workers Comp HU Property EQ Property EQ Workers Comp

Loss

Terrorism loss exceedance probability (EP) curves for individual lines of business can be combined with natural catastrophe perils to view total catastrophe risk.

Hazard: A Moving Target The terrorism hazard is constantly changing as the U.S. fights the war on terrorism.The fact that the hazard fluctuates while insurance premiums are typically fixed for one year indicates that risk managers should evaluate losses using not only the current estimate of hazard, but also alternative high and low hazard estimates that could occur over the next 12 months. Enterprise-wide Risk

Application of an attack footprint to portfolio exposures highlights an insurers potential for loss resulting from a terrorist attack.

Deterministic Scenarios Having identified the areas of exposure concentration, the next step is to analyze loss scenarios at key targets on a deterministic basis. Accumulations are managed by maintaining losses at an acceptable level for benchmark scenarios in high exposure areas. Key Drivers of Loss

While managing terrorism risk is crucial to the survival of a company, it is only one piece of the catastrophe risk puzzle. RMS technology is compatible across perils, allowing the user to combine natural catastrophe risk with terrorism risk to view total cat losses on an enterprise-wide basis.

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Accounts A-E Number of Employees Average Annual Loss Account B Account A All Other Policies All Other Policies

Account E Account D Account C

Detailed loss output highlights accounts and locations that drive overall portfolio risk.

Analysis of a comprehensive event set along with the relative likelihood of event occurrence can be used to understand the drivers of portfolio risk.These results allow the risk manager to drill down to determine drivers of loss by city, account, line of business, and target type.

Peter Ulrich is managing director of the RMS Enterprise Risk Management practice. He has lectured on the linkages between terrorism and enterprise risk at numerous seminars and conferences, and was co-author of the RMS white paper Managing Enterprise Risk in the Aftermath of the WTC Catastrophe.

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Probabilistic Terrorism Model History

Original release: September 2002 Most recent upgrade: September 2003 Future upgrades: modeled frequency and target
prioritization are updated as dictated by changes in the terrorism landscape Model Scope

Sabotage-Industrial Explosion & Release: 3 magnitudes Sabotage-Nuclear Plant: 3 magnitudes, 4 wind

directions

Chemical-Sarin Gas:Weaponized Indoors, Outdoors

(3 magnitudes, 8 wind directions)

Biological-Anthrax:Weaponized Indoors; Outdoors

(3 magnitudes, 8 wind directions)

Biological-Smallpox: Conventional (3 magnitudes, 3

response scenarios); Genetically Engineered (2 magnitudes)

Geographic scope: United States Lines of business: property (building, contents,

business interruption) and workers compensation; life, health, personal accident, accidental death and dismemberment available on a consulting basis

Radiological-Dirty Bomb: 2 magnitudes, 4 wind

directions

Nuclear Bomb: 2 magnitudes

Special Features

Comprehensive coverage of both foreign and

domestic terrorist groups Exposure Data Resolution

Results provided for foreign certified, foreign noncertified, and domestic losses individually and in total

Integrated functionality for application of TRIA

coverage

Latitude/Longitude, Street Address, or ZIP Code

Probabilistic Event Set

Ability to combine terrorism AEP/OEP with RMS

natural peril output

Ability to exclude attack types (e.g. nuclear exclusion) Approximately 78,000 events at 3,400 targets AEP with secondary uncertainty considers both
event frequency and potential for simultaneous coordinated swarm attacks Attack Modes Modeled Related Products

U.S.Terrorism Target Database: includes target name,

latitude/longitude, address, category, and likely attack modes

Bomb: 600 lb, 1 Ton, 2 Ton, 5 Ton, and 10 Ton Aircraft Impact Attack Conflagration Attack Sabotage-Industrial Explosion: 3 magnitudes Sabotage-Industrial Toxic Release: 3 magnitudes, 4
wind directions

U.S.Terrorism Scenario Model: includes simple and

VRG damage footprints for deterministic scenario analysis of specific attack modes

Terrorism Loss Costs: available on a consulting basis

for all coverages and lines of business

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