Assessing the Nature and Role of Terrorism Risk Models in the Insurance Sector

Insurance represents an important but often overlooked component to managing and mitigating the impact of terrorism. It plays a key role in enhancing resilience to terrorism especially regarding high intensity terrorist campaigns or high impact terrorist attacks. Extremely little attention however has focused on how the insurance industry assesses and calculates terrorism risk and what the implications may be of this. This research article provides for the first time an overview of the three main terrorism risk-modelling platforms that are used in the insurance market today: Touchstone, RMS Probabilistic Terrorism Mode (PTM), and Sunstone. The article assesses the different approaches to threat and loss calculation that each of the models take. The analysis reveals that while the three models all approach the projection of terrorism loss in a broadly similar manner, there are variations in focus, which results in a significant difference in terrorism outlook and projected loss. The discussion concludes by considering some of the implications of these variations as well as potential avenues forward.