terrorism risk modeling

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Managing Terrorism Risk

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A c k n o w l e d g e m e n t s

Risk Management Solutions gratefully acknowledges the input of many world class specialists who acted as consultants and reviewersin the development of the RMSTM U.S.Terrorism Risk Model.These include:

Dr. Rohan Gunaratna

Dr. Magnus Ranstorp

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

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 andDirector, RAND,Washington D.C.

Director, RAND Public Safety and Justice

Director, RAND Institute for Civil Justice

Associate Economist, RAND andFaculty Research Fellow, National Bureau ofEconomic 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 GroupJanes Information Group

Janes Information Group

Hazard Management Solutions Ltd.,Editor of TRITON terrorist activity database

Professor of Nuclear Engineering, University ofCalifornia at Berkeley, and member of theAdvisory 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 andassociated groups

Terrorism threat from Islamic militant

groups and political violence in theMiddle East

Terrorism risk in the U.S.

Homeland security

Terrorism compensation & liability

Probabilistic modeling and economics ofterrorism risk

Loss modeling and the defense and

control of terrorism weaponryChemical, biological, radiological, andnuclear weapons in terrorism

Economics of terrorism insurance

Emergency response to terrorismincidents

Historical data on terrorism attacks

Terrorism, intelligence, and lawenforcement

Defense and security at targets

Systems analysis research

Attack technology, logistical burden, andred teaming analysis

Terrorism, intelligence, and newsanalysis

Red teaming, site security and logisticalburden

Weapons systems and unconventionalattack operations

Site security

Security survey of New York skyscrapers

Security survey of New York skyscrapers

Attack technology and terrorist activity

Nuclear power plant safety againstterrorist attack

Nuclear power plant operations andsecurity

Bio-terrorism attacks and emergencyresponse

Industrial facility targeting

Use of computational fluid dynamics forblast modeling


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The RMSTM U.S. Terrorism Risk Model

1

The threat of terrorist attack will continue to pose a major risk to the insurance industry into the near future.Thispublication describes how the terrorism landscape is changing, and how such changes are reflected in version 2 of theRMS 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 fromboth foreign and domestic terrorist organizations. It supports multi-line risk analysis for both certified and non-certifiedevents impacting property, business interruption, workers compensation, life, personal accident, and accidental death anddismemberment insurance.

The model employs state-of-the-art methods for quantifying the impact of a range of potential terrorist attacks, fromconventional weapons to chemical, biological, radiological, and nuclear (CBRN) weapons.These attack modes aremodeled at potential terrorist targets across the U.S. Attack frequency includes consideration of the potential for multiplesynchronous attacks -- a signature of Al Qaeda.

Probabilistic loss analysisprovides key statistics suchas return period losses,average annual loss, andstandard deviation.

Manage Portfolio Risk

Generate aggregate exceedanceprobability (AEP) loss distributions byline of business and in total Identify most critical terrorist attackscenarios for your portfolio Analyze key drivers of loss byaccount, location, target type, and city Quantify the risk of fire lossesfollowing terrorist attacks for policies

without terrorism coverage

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Expanded Capabilities

Expected

Reduced Capabilities

Loss

Probabilityof

Exceedance

Examine What If? Scenarios

Consider alternative Risk Outlooksto understand sensitivity of results tovarying hazard assumptions Evaluate alternative treatyreinsurance or securitization structuresfor 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 alternativelayers for excess policies orreinsurance treaties Capture key parameters for

risk scoring Design and implement underwritingguidelines to diversify portfolio risk

High-resolution terrorism

risk maps provide

underwriting guidance in

major cities.

Version 2 of the RMS model

includes alternative Risk

Outlooks, representing

different underlying

assumptions about the

development of the terrorist

threat and attack frequency.


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While Al Qaeda has suffered the lossof operational leaders and destructionof its traditional bases in Afghanistan,its intention to attack the U.S. and itsallies has not diminished.To survive

the global hunt,Al Qaeda has rapidlyevolved, adapting its operational andsupport activities, including its fundraising, communication, and even itstargeting practices.

Al Qaeda is trying to compensatefor its losses by turning to groups andmembers it has trained to join thefight. It provides strategic and tacticaldirection to three dozen associatedgroups in Asia, the Middle East, theCaucuses, and the Horn of Africa thatshare the Al Qaeda ideology of auniversal jihad.Throughout the1990s, Al Qaeda and Taliban trainingcamps in Afghanistan trained 70,000to 120,000 Muslim youth in guerrillaand terrorist tactics to fight in thePhilippines, Indonesia, Kashmir,Bosnia, Kosovo, Chechnya, ChinaAlgeria, Egypt, Jordan,Yemen, and

other regions. As the internationalcommunity turned a blind eye,Afghanistan became a terroristDisneyland.

Inspiring Other Groups

In many ways,Al Qaedas greatestsuccess has been to penetrate localIslamist groups waging territorialstruggles by co-opting their leaders

and using those organizations tofight both at a domestic and aninternational level.

Despite being the most huntedterrorist group in history, Al Qaedaremains a formidable threat tointernational security. Since 9/11,over 100 attacks have been abortedor disrupted. Nonetheless, as recentbombings around the world havedemonstrated, the threat has moved

beyond Al Qaeda. Its regionalassociates are as lethal as their parentgroup.They have learned and willincreasingly use Al Qaeda martyrdom

tactics such as hijacking and crashingaircraft, contact poisons, anti-aircraftweapons, and other techniques toinflict mass fatalities on their enemies.

Despite the arrest of several

thousand Al Qaeda members and keysupporters in more than a hundredcountries, the network has been ableto replenish its lost rank and file andcontinue the fight.Although AlQaeda is less able to mountcoordinated multiple suicide attackson the scale of 9/11 inside the U.S.,it is still capable of carrying outmedium scale attacks.

Restricted Capability

There are three reasons why therehas not been another major Al Qaedaattack 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, andresources to plan and mount

spectacular attacksAs long as Western governments

can keep the public alert; shareinformation with Middle Eastern,Asian, and other governments; andmaintain an active global coalitionagainst terrorism, terrorist groupsand their support bases will weaken.

The fight against terrorism is longand hard. Historically, terrorist

groups have an average life span of13.5 years. It is essential to buildcounter-terrorist structures and trainpersonnel to meet the current andfuture threat.Al Qaeda is a globalorganization and no single countrycan fight it.Al Qaeda threatensmilitary, diplomatic, and civiliantargets and is capable of operating inthe air, on land, and at sea.

A wide range of security measures

are necessary to protect againstfurther attacks. Governments need toenlist the support of educational andreligious institutions and community

leaders to build an ethic to combatthe use, misuse, and abuse of religionin Al Qaedas recruitment and

support building.To manage thethreat posed by Al Qaeda and itsassociate groups, a multi-faceted andmulti-national effort is paramount.

The New Al Qaeda

2

Dr.Rohan Gunaratnagiving 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 ofTerror and is a senior research fellow at the

Centre for the Study of Terrorism and Political

Violence,University of St.Andrews, Scotland.

Terrorist attacks, such as the bombing of theMarriott Hotel in Jakarta, Indonesia inAugust 2003,demonstrate that the intent toattack U.S. interests is still strong.

AP Wide World Photos


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We are in something of a transitionalstate, with our counter-terrorismmeasures becoming stronger while AlQaeda constantly struggles to adaptitself to a new, less congenial

operational environment. During thisperiod of adaptation, there could becontinued smaller scale attacks and,as has been their recent operationalpattern in attacks overseas, mostlyagainst accessible, soft targets.

As military and governmenttargets increase their protectionlevels, softer targets such aseconomic and commercial targetsbecome more attractive --a fact that

has major implications for theinsurance industry.

Trend Towards Soft Targets

In addition to spectacular strikes,developments that have affected Israelover the past 18 months providesome important clues with respectto future terrorist trends: not just asmodels for potential future Al Qaeda

operations, but also as possibletemplates for attacks by othermilitant Islamic terrorist groups. Inthis regard, there are at least fourpotentially significant developments: The sustained campaign of suicidebombing that has convulsed Israelsince the start of the Second Intifadain September 2000. Although suicidebombings have been used since 1993,fully 70 percent of all such incidentshave occurred during the past 20months and have been responsible foralmost half of the 700 people killed. The attempt to bomb a largegasworks in a Tel Aviv suburb thatwould have a potentially catastrophicimpact on the city. The use of SAM-7 surface-to-airmissiles in an attempt to shoot downa charter Israeli passenger aircraft as

it took off from the Mombasa,Kenya airport. The growing use of poisons anddiseased suicide bombers, and

increased interest in chemical warfareamong some Palestinian groups.

Given that these techniques haveno unique operational or technicalrequirements, their ease ofimplementation in the U.S. cannotbe discounted. Indeed, one has to askwhether American or any European

society can easily bear any one ofthose types of attacks.

Potential Social Disruption

One can conjure up highly disruptivepossibilities that fit uncomfortablywithin the spectrum of thetechnological capabilities ofterrorists. Convulsing our society in

the way it has been attempted inIsrael is a real possibility.This can beachieved not only by the use ofweapons of mass destruction, thetargeting of infrastructure, and masscasualty events but also moreincidents that have far-reachingpsychological repercussions onsociety, such as suicide bombings,killings, and assassination of leaders.This is a deliberate and calculated

infliction of sharp, almost unbearablepain that is designed to bring societyto its knees.

Insurance Implications

The insurance implications of theseless spectacular types of attackswould be more frequent, smallerlosses that would mount up overtime.The biggest impact on theinsurance industry and other

businesses would be a destabilizing offinancial confidence and a period ofeconomic hard times.

Emerging Trends for Terrorism Risk

3

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, theleading scholarly journal in the field of

terrorism research.

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

InternationalTerrorist Threats

DomesticTerrorist Threats

Al Qaeda& Associates

Other ForeignTerrorist

Organizations

Micro-Terror Attacks Macro-Terrorism

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There are 35 named groups on theU.S. State Departments list ofdesignated foreign terroristorganizations.At least five are activeand have a known presence in the U.S.

Al Qaeda Hizballah Al-Gamaa Al-Islamiyya, anEgyptian Islamic group Kahane Chai, a Jewish extremistorganization Mujahedin-e-Khalq, a Marxist-Islamic and anti-Iranian group

Reviewing the capabilities andmotivations of each group, the mostserious threat is posed by Hizballah.

Provoking Hizballah

If U.S. foreign policy in the MiddleEast extends to changing the regimein Syria, military intervention in Iran,or overt special operations in Lebanon,then retaliation may involve terroristattacks by Hizballah within the U.S.Hizballah already has an establishedpresence in the U.S. and has a known

capability for successful attacks.Hizballah is one of the most

renowned Islamist movements inhistory. Its notoriety as a terroristorganization, as well as a politicalparty in Lebanon, arose from itskidnapping of over 80 westerners inthe 1980s, the attack on the U.S.embassy in Beirut in April 1983, andthe bombing of the U.S. Marines

barracks in Beirut in October 1983.The reputation of Hizballah inguerrilla warfare has been sustainedby its 18-year military conflict withIsrael in South Lebanon, whichculminated in Israeli withdrawal inMay 2000; an event which earned theesteem of the Islamic world.

Proportionate Retaliation

Unlike Al Qaeda, which espouses the

virtue of maximum violence,Hizballah advocates the principle ofproportionate violence. As explainedby one Hizballah spokesman, In our

religion it is not something desirableto kill an enemy who is not about tokill you. If Syrians or Iranians arekilled during the process of regime

change, the consequence is likely tobe proportionate retaliation.

Associated terrorist attacks withinthe U.S. may take the form ofassassinations, bombings, and the useof military weapons.The measuredapproach toward political violence isreflected in the attitude towardsuicide missions. Although suicidemissions were originally justified andsanctioned by Hizballah, moreconventional forms of warfare havebeen conducted since the mid-1980s.Compared with spectacular,maximum-destruction terroristattacks by Al Qaeda, attacks byHizballah are expected to be moreconventional militarily, and generallyresult in fewer casualties and lowerlevels of economic loss.

The modus operandi of Hizballah

reflects the cool-headed rationalityof its leader, Sheikh Hassan Nasrallah,who has assembled a significantpolitical power base in Lebanon.

They demonstrate the principle ofproportionality in their militaryengagements on the Israel-Lebanonborder, responding to attacks with

measured retaliation calculated tostop short of triggering largecounter-responses.

While the chances of a Hizballahstrike on the U.S. are small, muchwill depend on how the Middle Eastsituation develops during 2004.

Threats from Other Foreign Terrorist Organizations

4

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 MiddleEast, particularly the growth and influence of

fundamentalist Islamist movements.His latest

book is Hizballah in Lebanon:The Politics of

the Western Hostage Crisis.

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.

Courtesy, U.S. Department of Defense


7/16

The FBI defines domestic terrorismas the unlawful use, orthreatened use, of force or violenceby a group or individual based andoperating entirely within the United

States or its territories withoutforeign direction in furtheranceof political or social objectives.

Domestic terrorism in the U.S.over the past half-century has beencharacterized by a series of waves,reflecting the waxing and waning ofcampaigns by different politicalgroups. Active U.S. domesticterrorist organizations currently canbe divided into right wing, left wing,

and special interest extremist groups.

Right Wing Extremists

Right wing groups are characterizedby opposition to federal taxation andregulation, race hatred, and anti-internationalism.Their eclecticdiversity provides a political refugefor paramilitary survivalists, taxprotesters, white supremacists, Neo-Nazis, and supporters of theChristian Patriot and Militiamovements.These groups haveshown themselves capable oflaunching destructive bombings,arson attacks, and even unsuccessfulattempts to attack petrochemical

and nuclear facilities.

Left Wing Terrorist

Groups

Left wing groups aretypically characterized by

radical socialist doctrinewith the goal of bringingabout political changethrough revolution. Leftwing terrorist activitypeaked in the early 1970sduring the Vietnam War.Since the demise of theSoviet Union, left wingterrorism is no longerstate-sponsored, and has fallen to a

low level. Anti-capitalist and anti-globalization demonstrations providecurrent opportunities for left winginspired riots and acts of massviolence.

Special Interest Activists

Special interest groups typically seekto resolve, through direct action,specific issues such as animal rights,

abortion law, and environmentalprotection.The Animal and EarthLiberation Fronts are among the mostactive extremist groups in the U.S.,but their ultimate objective is topromote animal rights and ecologicalissues, so their attacks aredeliberately planned to cause onlymoderate loss.The most destructivepractice of these special interestgroups is the use of improvised

incendiary devices to commit arson.

Domestic Terrorism Risk

Modeling

The RMS terrorism model useshistorical data from pre and post9/11 to model the full spectrum ofdomestic groups that currentlythreaten the U.S. Each domesticthreat group is geographically andideologically distinct and has beenanalyzed independently to provide anintegrated view of the total risk from

domestic terrorism. Users can deriveaverage annual loss for a coverage bylocation, policy, or account, andobtain a portfolio EP curve andrelevant risk management statistics.

Domestic Terrorism Threats in the U.S.

5

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 atBerkeley.

The capability for right wing extremists tolaunch deadly attacks was demonstrated inthe 1995 bombing of the Murrah building inOklahoma by Timothy McVeigh.

Historical terrorist activity, the number of

militias,and key crime statistics give an

indication of right wing extremist activity

across the U.S.

Risk ClassesAverage Annual Loss

Commercial

Government

Religion

EducationMedical

Industrial

Recreation

Residential

Agriculture

RMS differentiates the risk of domestic terrorism across ninedistinct risk classes.



8/16

Terrorists are noted for adaptivelearning, and risk modelersaccordingly also need this facility,because the terrorist threat isconstantly evolving. A review of

recent terrorism activity provides anempirical basis for model calibrationand updates in version 2 of theRMSTM U.S.Terrorism Risk Model.

Increased Risk at Soft Targets

A distinctive feature of the RMSmodel is its use of game theory.Game theory predicts that, as primetargets are hardened, rational

terrorists will tend to substitutelesser, softer targets.This predictionechoes the testimony of the CIAdirector, George Tenet, in February,2001, as security is increased aroundgovernment and military facilities,terrorists are seeking out softertargets that provide opportunities formass casualties. In terrorism talk,this is called target substitution.

Since September 2002, some

significant examples of targetsubstitution have occurred. A notableinstance was the holing of the Frenchoil tanker, Limburg, off the coast ofYemen.The terrorists admitted thattheir original target had been a U.S.navy frigate, but they were happy tostrike the softer commercial target,because it was scheduled to supplythe U.S. fifth fleet. Explicit admission

of this soft target strategy has sincecome from Khalid Sheikh Mohammed,the Al Qaeda chief of militaryoperations, who was arrested inMarch 2003.

Reduced Chances of Al Qaeda

Strike

Following the path of least resistanceis a law of nature. It also happens tobe a guiding principle of Al Qaeda,and influences its choice ofweaponry.

The terrorist preference forconventional bombs and ready-to-usemilitary weapons has beendemonstrated over the past year in theattacks in Bali, Mombasa, Riyadh,Casablanca, and Jakarta. Each of thesetarget cities has tourist namerecognition, another notable aspect of

the Al Qaeda modus operandi.The absence of any spectacular Al

Qaeda attacks within the U.S. over thepast year is consistent with riskestimates in version 1 of the RMSmodel. Given the increased globalcounter-terrorism pressure and acorrespondingly high interdiction ratefor planned attacks, version 2 of theRMS model indicates a yet smallerchance of a spectacular Al Qaeda attacksucceeding in the U.S. in 2004.

However, with possible U.S.intervention in Syria and Iran, whichmay be covert or clandestine, there isan additional risk of these statessponsoring Hizballah to make aretaliatory attack against the U.S.homeland. In contrast with Al Qaeda,Hizballahs modus operandi involvesthe concept of proportionate response,

so a Hizballah attack would typically beless damaging than one perpetrated byAl Qaeda. In particular, CBRN attacksby Hizballah are very unlikely.

Even for Al Qaeda, the possibilityof a CBRN attack is somewhat moreremote than last year, given theeffectiveness of the global securitycrackdown.The softening of weapondestructiveness and lethality ismirrored in a softening of targetchoices: more targets in lesser ranked

U.S. cities; more infrastructuretargets, such as bridges, rail stations,and gas stations. Success by counter-terrorism forces in disrupting the AlQaeda network is straining itsoperational capability, and somitigating the terrorism risk forinsurers.

Parameterizing the Evolving Threat

6

Dr.Gordon Woo is the chief architect of the

RMS terrorism model and author of TheMathematics of Natural Catastrophes. His

expertise in game theory stems from his tenure

in the Society of Fellows of Harvard

University.

Concrete bollards in front of the White House

protect against truck bomb attacks.Government

buildings and military bases have seensignificant improvements in security measures.

Trucks can usually get access to many office

buildings because security measures are often

less stringent in private buildings,makingthem softer targets.



9/16

To perpetrate a successful one-tontruck bombing attack, a terroristgroup needs many months to plan,tens of thousands of dollars worth ofequipment, and a team of people that

includes well-trained munitionsexperts.

These resources, althoughsubstantial, are within the familiarrange of operations by terroristgroups. More costly and complex isthe logistical burden of carrying outan attack using technologies of CBRNweapons.The resources and skillsneeded are highly specialized andrare.The processes required toproduce biochemical weapons requirespecialized and expensive laboratoryequipment, and the professional skillsof micro-biologists. Amateurs couldproduce limited amounts of nastycultures in their kitchen sinks --andattacks by these can be highlydisruptive --but achieving masscasualties requires a large scale andprofessional operation.The logistical

burdens of large scale CBRN attackstend to be an order of magnitudehigher than many conventional attacks.

Building a CBRN Capability

We know that our adversary has astrong interest in acquiring CBRNweapons. Al Qaeda is known to haveattempted to purchase radioactivematerials and has experimented withdeadly gases. It has made statementsthreatening the deaths of four millionAmericans and has no moral qualmsor ideological constraints on masskilling.

The obstacles to obtaining CBRNcapability are two-fold. Firstly,specialized materials and equipmentare required. Radiological weaponsneed radioactive source material.Biological weapons require initial

cultures. Chemical weapons needspecial ingredients and reagents. Allof these can be obtained, at a price,from somewhere.

Secondly, and most critically, isthe skill and knowledge required toproduce and assemble weapons thatwork. People with the know-how arethe key.These people are not

commonly available within the ranksof Al Qaeda, but they and theirknowledge are being sought.Captured documents show that AlQaeda has recruited competentscientists, including microbiologistsand technically skilled younggraduates from colleges. Mountingevidence shows that a CBRN skillbase is being developed.

Preventing CBRN Production

Al Qaeda is clearly establishing anR&D team, but there is no evidencethat they have yet achieved anyspecific chemical or biologicalproduction. Our experts estimate itcould take between nine months tothree years for a technically proficientR&D team to become an effectiveproduction unit.

During 2004 there is a small butsignificant chance that CBRNcapability will be achieved. It is aprobability that will grow over time,

unless production capability can bedisrupted and prevented. Efforts todetect, trace, and interdictpreparations are paramount.

Ultimately, however, U.S.

intelligence analysts believe we will belucky to interdict these preparations.They have prepared the public andagencies for an attack. In June 2003,the U.S. government stated that thereis a high probability of CBRN attackwithin 2 years. Although anunpleasant prospect, the insurancecommunity and other risk managerswould be prudent to incorporate thisscenario into their medium term

planning.

Can Terrorists Achieve CBRN Capability in 2004?

7

Pete Baxter is the director of Global

Consultancy Operations at Janes InformationGroup.Janes Information Group publishes

over 200 titles annually, covering areas of

military and security intelligence.

Bomb - 1 Ton

Advanced Guerilla Skills

Personnel

Cost

Time

Skills

$

TotalLogistical Burden:

$$$

Anthrax - Medium, Outdoor

Specialized Skills

Personnel

Cost

Time

Skills

$

Total

Logistical Burden:

Time

$

Time

$

0 5 10 15 20 25 30 people

0 1 year 2 years 3 years

0 $500,000$1m

2350

0

00

00

0 5 10 15 20 25 30 people

0 1 year 2 years 3 years

0 $500,000 $1m

2,390

0 5 10 15 20 250 5 10 15 20 25

0

0

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


10/16

The security landscape has changedsubstantially in the U.S. over the pastyear, including: The formation of the Departmentof Homeland Security

Significant advances in aviationsecurity Major improvements at ports andfor commercial shipping inspection The rapid establishment of aTerrorism Threat Integration Center Stepped up levels of civil defenseand public preparedness, including thealert system and a readiness publicservice campaign

These and other elements havehelped prevent attacks inside U.S.borders.This security environment isimportant because it increases theterrorists logistical burden byimpairing reconnaissance, fundraising,travel, and weapons acquisition. Itconstrains terrorists to reduce theiractivity, or to mount smalleroperations against softer targets.

Security at Potential Targets

Public and private entities haveinvested heavily in security. Commonprocedures include stand-off barriersto prevent or mitigate vehicle bombattacks, increased security patrols,and access controls for visitors.Specialized security (such as profiling,electronic sniffers, and biometricidentification) is being used at certain

key government buildings, criticalinfrastructure, and high visibilityevents. Sensors and other CBRNdetection technologies are beingtested but may take years to deploy.

Since terrorists research theirtargets to find vulnerabilities, theuneven implementation of securitymeasures, and the measures

differential effectiveness againstdifferent attack modes may changetargets relative likelihood of beingattacked or the relative likelihood ofthe weapon used in the attack.

How Will Security Change in the

Next Year or So?

Much of the new security environmentis here to stay, at least for the

foreseeable future. But there isongoing and legitimate debate aboutthe appropriate level of spending forour protection. Given the fiscalenvironments in the public and privatesectors, the relative concentration oftargets, and the lack of any majorincidents on U.S. soil, further largeinvestments are unlikely.Within thescope of existing resources, key areasfor policymakers to focus on include:

Improving the integration of lawenforcement into intelligencefunctions. Intelligence is key to detectand pre-empt attacks, and lawenforcement is a valuable ally indomestic intelligence efforts. Improving personnel and cargosecurity at airports. Intelligenceindicates that Al Qaeda remainsinterested in attacks using airliners.Although substantial progress has beenmade on securing the passenger side ofairports, considerably less attention hasbeen paid to securing the cargo that isshipped via commercial aviation.

Allocating resources based oneffectiveness against risk. Immediatelyafter 9/11 there was a naturalemphasis on increasing security inevery manner possible. However, asresources become strained, it isnecessary to assess which investmentscan provide the most protection.

The relatively long period since

the September 11 attacks is not anindication that the risk hasdisappeared, as the patient terroristwaits for its targets to soften andbecome complacent. Policymakerswill be challenged to maintain publicawareness and security levels as theamount of time from the last successfulattack in the United States increases.

The Cost of Security

8

Dr. K. Jack Rileyis director of the RANDPublic Safety and Justice and co-director of theRAND Center for Terrorism Risk ManagementPolicy. For over a decade Dr. Riley has been aleader 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; andcounter-terrorism resource allocation.

Improvements to security systems in manyareas have increased,making it harder tocarry out terrorist attacks.

A simulated dirty bomb attack in Seattle (May2003) tested emergency response systems andtop officials reactions.Events like these haveimproved public awareness and preparedness.

Average change in security from 2002 to2003 for different target types (consensus

opinion of the RMS panel of experts).

Major Government Buildings

Passenger Airline Anti-hijacking

Military Bases (U.S.)

Nuclear Power Plants

Skyscrapers

AirportsStadiums

Industrial Facilities

Oil and Gas Industrial Facilities

Airport Take-off Zones (SAM)

Central Business District

Hotels & Casinos

Subway and Train Stations

Tourist Attractions

Shopping Centers & Malls

Change in Security

Major increase in security

Significant increase in security

No effective increase in security




11/16

Understanding Targeting

Fundamental to the assessment andmanagement of terrorism risk is theprocess that terrorists go through toselect their targets.Al Qaeda and itsassociate groups have developed a

highly systematic approach toselecting their targets.As more attackcase studies emerge we see a processof research and evaluation for targetsthat fit the terrorists strategic andtactical objectives.

The planning process for 9/11has been pieced together fromtestimony, witnesses, and captureddocumentation. Following thepreparation of an initial list of target

candidates, a series of meetings andhigh-level approvals prioritized theminto a short-list. Candidate targetsthat were considered --nuclear powerstations, gas stations, bridges -- werenot as important as those finallyselected to meet the criteria ofimpact, chances of success, and timeand resource availability.

Planned Attacks

Other attacks on U.S. and alliedinterests overseas -- bombings, missileattacks, attacks on ships --were alsocarefully planned. Criminalindictments against the perpetratorsdocument the detail of thepreparation for attacks, includingalternative targets considered and thefactors that can cause last minuteswitching of targets.Video footage ofreconnaissance shows what featuresinterest them. Even for lesser scaleattacks, such as individual suicidebombings, the mind-sets of thebomber and the direction providedby the support team has emergedfrom interviewing failed bombersand forensic analysis of attacks thatsucceeded.

Documenting the targeting process

has provided an understanding of theutility of a target to an attacker.Theprioritization of targets comes fromthe amount of economic damage, life

loss, and disruption that would becaused, along with how well thattarget symbolically represents thecause of the terrorists grievance.

City Prioritization

The city where a target is located isan important consideration for aforeign terrorist that is motivated byanti-national sentiment.The philosophyof striking at the economic engines ofU.S. prosperity and symbols of U.S.nationhood and leadership raisesattack likelihood in major cities.Thelarger and more famous the city, andthe more target-rich that city is, thehigher priority it is to the terrorist.Spectacular attacks are likely to beprioritized in major cities, to maximizethe terrorists political agenda.

Choosing Targets

The RMS target database uses thesecriteria to select and prioritizetargets from the terrorists point ofview. RMS researched severalhundred thousand candidate targets

across the U.S., prioritizing eachtarget according to the city it islocated in, the type of asset itrepresents, the potential for

economic and life loss, its symbolicvalue, and its level of security.

Based on this method, some3,400 targets across the U.S. havebeen selected for modeling specific

attacks.These fall into 25 differentcategories ranging from governmentbuildings and public infrastructurethrough to commercial and privateproperty. Detailed data have beencompiled about them to establish theirutility to the terrorist, the likely levelof security, and other factors thataffect target hardness.

The risk to the insurance industryand to the country as a whole

depends on how these targets areviewed by the terrorist. Differenttargeting strategies, developments inthe capabilities of terrorist groups,and changes in the relativities oftarget hardness all affect the risk.

The RMS model recognizes thatthese factors change over time. Itallows users to carry out sensitivitystudies through the use of Risk

Outlooks.These include an expectedoutlook based on our current analysisof the terrorism threat, as well asalternative outlooks reflecting plausiblechanges to the terrorism environmentthat would increase or decrease risk.In a fast developing field, this enablesrisk managers to make use of thelatest intelligence in their terrorismrisk management decisions.

9

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.

The identification of targets that wouldprovide the highest utility to the terroristsimulates the decision-making that terroristgroups go through in their targeting.


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What kind of loss would terroristattacks cause? To accurately modelthe impact of the full range ofpotential terrorist attacks, a detailedanalysis is required of processes as

diverse as explosions, aircraftimpacts, fires, decontamination,diseases spread through populationsby biological and chemical agents,missile technology, and otherphenomena.

Since the release of version 1 ofthe RMSTM U.S.Terrorism RiskModel, an extensive amount ofresearch and development has goneinto refining loss modeling for allmethods of attack.This work hasincluded advanced physical modelingsuch as the use of computational fluiddynamics (CFD) models to simulatethe effects of explosions in urbanenvironments. High-resolutionbuilding data has been used in thiseffort. Modeling has been broughtdown to a resolution of 50 meters forattack modes where there is a large

variation of loss over a short distance.Additionally, extensive simulations

have been performed for all attackmodes in order to quantify the

uncertainties in losses as well as thecorrelation of losses betweenlocations in a given attack.

Modeling Explosions in Cities

There is an abundance of informationavailable related to the physicalprocesses associated with explosions.However, almost all testing andresearch has been concerned with the

impacts of blast waves on individualbuildings in the open, rather than inthe shielded and complexsurroundings of a city.

Because most ofthe target-richenvironments arein dense city areas,RMS has developedmodeling techniquesappropriate for the

effects of explosionsin a downtownurban environment.CFD simulationmodels help inunderstanding howa blast pressurewave progressesthrough streetpatterns, andbetween andaround buildings.

The shielding effects of one buildingin front of another, and the focusingeffects of blast reflection waves cancause damage and injuries inunexpected places. Districts ofcities have different densities andbuilding heights that affect thedamage caused by explosions. RMScategorizes the city characteristicsthat affect bomb blast behavior foreach target in the model.

Detailed City Data

A key component of thisdevelopment effort has been thecompiling of accurate representationsof building layouts in urban areas.Unique building-specific datadeveloped in conjunction with theSanborn Map Company has addressedthis need.With this data, we have

built computer model replicas ofdowntown urban areas that are thenanalyzed using CFD models for arange of bomb sizes.Thesesimulations provide data on thedifferences in blast wave propagationwhen comparing dense versussparsely built up areas, and in bothcases provide detailed output relatedto the horizontal and verticalvariations in pressure needed todevelop vulnerability functions.

Quantifying Insurance Losses from Terrorist Attack

10

Damage footprint from a truck bomb in downtown Chicago, using

detailed building data from Sanborn maps.

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.

High

Low

BlastPressure


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Dispersion Modeling

The effects of chemical andbiological attacks depend on howthe agents are dispersed in the

atmosphere.Analytical modelscompute the dispersion of wind-borne contaminants spread across acity. Advanced dispersion modelsincorporate transient puff (singlerelease) and plume (steady-statedissipation) releases across complexweather and terrain conditions topredict the toxic concentration anddosage suffered by the population.

Contagious Disease Modeling

To reflect a growing concern for thepotential of bioterrorism attacks,RMS has introduced a contagiousdisease model that simulates theeffect of smallpox attacks on the U.S.Disease is spread by social interactionand by population movementbetween cities. Different scenariosfor the effectiveness of emergency

response in treating, quarantining,and vaccinating the population tocontain the outbreak are based oncurrent policies and simulationexercises carried out by governmentauthorities.

Business Interruption Modeling

The World Trade Center disasterresulted in unprecedented businessinterruption (BI) losses, due to thenature of the attack and its location ina major financial center.To understandthe primary factors leading to BIlosses in this event, RMS surveyedinsurance companies regarding thenature of their claims. Extra expensefactors such as relocation costs playeda large role in exacerbating BI losses.

The RMS model quantifies direct BIincluding extra expense, as well asBI due to civil authority areas.

Casualty Modeling

Injuries to building occupants and

population in the streets are criticalelements of the effects of terroristattacks. RMS models human casualtiesfor workers compensation, life, health,and other lines. Six injury states areused to model casualties resultingfrom various attack modes.Theseinjury states provide a more refinedrepresentation of casualty losses.

11

Guy Morrowis head of science and

engineering at RMS. He manages thedevelopment 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.

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.

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


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Since the watershed industrycatastrophes of Hurricane Andrew in1992 and the Northridge Earthquakein 1994, virtually all members of theinsurance industry exposed to natural

catastrophes have become proficientin the use of probabilistic catastrophemodels to manage risk.

While terrorism models canprovide the same type of output, it isclear that the nature of this perildemands a somewhat differentapproach to managing the risk. Ratherthan rely solely on probabilistic lossanalyses, prudent risk managersutilize multiple methods of assessingterrorism risk to triangulate on themagnitude and location of risk.Effective terrorism risk managementrequires answers to the followingquestions: Where are my greatest multi-lineexposure concentrations, and are anyof them near high-risk terrorismtargets? Using benchmark deterministic

terrorism scenarios (e.g. 2-ton truckbomb), are there any potentialattacks that could result in lossesgreater than managementsprescribed threshold? What cities, target types, oraccounts are the key drivers of myportfolio loss? When considering full probabilities,what is the portfolio loss distribution?

Multi-line Accumulation

The extremely focused geographic areaimpacted by certain terrorist attackmodes highlights the need to capture

high-resolution exposure informationfor multiple lines of business.

Using a 400-meter radius (therange in which most damage occursin typical conventional weaponsattacks), users can identify areas ofgreatest multi-line exposureconcentration anywhere in aportfolio, or around high-risk targets.

The fact that 400 meters issignificantly smaller than a typical ZIP

Code underscores the need for high-resolution building level geocoding.

Deterministic Scenarios

Having identified the areas of exposureconcentration, the next step is toanalyze loss scenarios at key targets on

a deterministic basis.Accumulationsare managed by maintaining losses atan acceptable level for benchmarkscenarios in high exposure areas.

Key Drivers of Loss

Analysis of a comprehensive event setalong with the relative likelihood ofevent occurrence can be used tounderstand the drivers of portfolio

risk.These results allow the riskmanager to drill down to determinedrivers of loss by city, account, lineof business, and target type.

Hazard: A Moving Target

The terrorism hazard is constantly

changing as the U.S. fights the waron terrorism.The fact that the hazardfluctuates while insurance premiumsare typically fixed for one yearindicates that risk managers shouldevaluate losses using not only thecurrent estimate of hazard, but alsoalternative high and low hazardestimates that could occur over thenext 12 months.

Enterprise-wide Risk

While managing terrorism risk iscrucial to the survival of a company,it is only one piece of the catastropherisk puzzle. RMS technology iscompatible across perils, allowing theuser to combine natural catastropherisk with terrorism risk to view totalcat losses on an enterprise-wide basis.

Application of Terrorism Models to Manage Risk

12

Peter Ulrich is managing director of the

RMS Enterprise Risk Management practice.He

has lectured on the linkages between terrorismand 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.

Application of an attack footprint to portfolioexposures highlights an insurers potential forloss resulting from a terrorist attack.

Terrorism loss exceedance probability (EP)curves for individual lines of business can becombined with natural catastrophe perils toview total catastrophe risk.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Number of Employees Average Annual Loss

AllOther

Policies

AllOther

Policies

Account A

Account B

Account D

Account C

Account E

Accounts A-E

Detailed loss output highlights accounts andlocations that drive overall portfolio risk.

Combined Cat Risk

Terrorism Property

Terrorism Workers Comp

HU Property

EQ Property

EQ Workers Comp

Loss

Pro

ba

bil

ity

of

Excee

dance

0%

1%

2%

3%4%

5%

6%

7%

8%

9%

10%

11%

12%


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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

Geographic scope: United States

Lines of business: property (building, contents,

business interruption) and workers compensation;

life, health, personal accident, accidental death anddismemberment available on a consulting basis

Comprehensive coverage of both foreign and

domestic terrorist groups

Exposure Data Resolution

Latitude/Longitude, Street Address, or ZIP Code

Probabilistic Event Set

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

Bomb: 600 lb, 1 Ton, 2 Ton, 5 Ton, and 10 Ton Aircraft Impact Attack

Conflagration Attack

Sabotage-Industrial Explosion: 3 magnitudes

Sabotage-IndustrialToxic Release: 3 magnitudes, 4

wind directions

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)

Radiological-Dirty Bomb: 2 magnitudes, 4 wind

directions

Nuclear Bomb: 2 magnitudes

Special Features

Results provided for foreign certified, foreign non-

certified, and domestic losses individually and in total

Integrated functionality for application ofTRIA

coverage

Ability to combine terrorism AEP/OEP with RMS

natural peril output

Ability to exclude attack types (e.g. nuclear exclusion)

Related Products

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

latitude/longitude, address, category, and likely attack

modes

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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2003 Risk Management Solutions, Inc.All rights reserved. RMS and the RMS logo are trademarks of Risk Management Solutions, Inc. All other trademarks are property of their respective owners.

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http://www.rms.com

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