Re/insurers must update approach to modelling terror risk: Aon
A shift has taken place in recent years to a new terrorism paradigm of lower severity but higher frequency modus operandi. Specifically, as security forces have tightened around the formation of groups and their ability to construct improvised explosive devices (IEDs), marauding attacks have become more common, using weapons including vehicles, bladed instrument and guns.
Parallel with this shift in attack type, re/insurers must update their modelling approaches, according to Stephen Tench, who works within the catastrophe modelling team at Aon leading terrorism R&D.
In a report titled “Modelling the Evolving Terrorism Landscape: A data scientist’s perspective” published on October 10, Tench wrote that by developing methods to accurately capture the risk of marauding attacks, analyses can be improved and market capacity increased.
He noted that although modelling terrorist attacks seems challenging at an individual level, patterns begin to emerge when seen from a macro viewpoint.
“Data scientists at Aon have been exploring how to capture these patterns to better understand the risks associated with marauding attacks,” he wrote.
“This approach follows a history of modelling manmade risks, such as the development of blast models, to accurately capture pressure waves from the detonation of explosives. The difference in marauding attacks is the focus on human nature rather than the well-defined rules of physics which govern the environment.”
He said that, in Aon’s new modelling platform for marauding attacks, a blend of a mathematical framework involving machine learning techniques, together with the latest social science research, is used to capture the various facets.
In conclusion, Tench stressed that the attack methodology of terrorists has shifted to the utilisation of lower technology weaponry over recent years.
“For the re/insurance industry to keep pace with the evolving nature of the terrorism threat landscape, new models must be produced.
“Machine learning, mathematical modelling techniques and social science research are all part of an insurer’s armoury to help improve the industry’s understanding of marauding terrorism attacks and mitigate the potential losses,” he concluded.
