The frequency conundrum: modelling terrorism for the insurance industry

Abstract

Many groups face the challenge of trying to make evidence based decisions about threats such as terrorism. Resource allocation by countries for security and resilience measures are a well-known challenge. While many countries keep this information extremely secret the USA has had its own methods reviewed publically by a number of respected bodies, such as the National Academy of Sciences. As recently as 2010 these reviews have been pretty negative in their conclusions (National Research Council, 2010). The UK and the Netherlands have also had their own national risk register processes reviewed in the open literature. Commensurate with someofthe major national resource allocation challenges; the insurance industry has also faced a need to understand the frequency and impact of terrorism. While some catastrophic terrorism models exist in the market it has been regularly asserted that government backstopping is required because of a number of challenges in terrorism. Data sets are frequently included in this.