BOSTON, September 3, 2002 — AIR Worldwide Corporation (AIR), the technological leader in catastrophe modeling and weather risk management, today announced the release of the AIR Terrorism Loss Estimation Model. The new catastrophe model, the first commercially available probabilistic model of its kind, can estimate the financial impact of insured property and workers compensation losses from potential future terrorist attacks in the United States.
"Exposure to terrorism is a significant risk, and the lack of comprehensive and affordable terrorism coverage is hurting U.S. businesses," said Karen Clark, president and CEO of AIR Worldwide Corporation, a subsidiary of Insurance Services Office, Inc. (ISO). "The problem is the current uncertainty about coverage, exclusions and price," said Clark. The new AIR model helps insurers and reinsurers quantify their risks, assess coverage and exclusions, estimate financial impact of attacks, support pricing decisions and improve overall portfolio management.
The model analyzes various threats posed by domestic extremists, formal international and state-sponsored terrorist organizations and loosely affiliated networks. It examines the full range of potential conventional attacks, including air crash and bomb blast, and their impact on insurers' and reinsurers' books of business. AIR is also examining nonconventional weapons, including chemical, biological, radiological and nuclear.
AIR has been modeling natural catastrophes since 1987. The terrorism model is similar in structure. It considers frequency and severity of attacks, likely targets and the impacts on both the intended targets and on surrounding structures — all within a fully probabilistic framework.
Estimating the likelihood and nature of future terrorist activity is challenging. Unlike natural catastrophes, terrorist attacks are a function of highly variable human behavior. In developing its model, AIR employed a team of counterterrorism specialists with national, high-level operational and analytic expertise and previous experience at government agencies, such as the FBI, CIA and the Department of Defense.
Mr. Buck Revell, a former associate deputy director at the FBI responsible for criminal investigations, counterterrorism and counterintelligence, was a member of that team. "The evaluation process that AIR has undertaken regarding terrorism is extremely important," Revell said. "The first and most important element of being prepared is to understand the true nature of the risk and the consequences of not being prepared for a terrorist attack."
"The frequency and severity of attacks were estimated using the Delphi Method," said AIR terrorism model product manager Jack Seaquist. Developed by the RAND Corporation at the start of the Cold War, the Delphi Method has been used to generate forecasts in many areas, including intercontinental warfare and technological change.
AIR compiled a comprehensive landmark database to represent the full range of possible targets. Landmark properties include buildings, bridges, tourist attractions and national infrastructure consisting of both government and private-sector properties. The list includes high-profile "trophy" targets that have a greater-than-average risk of being attacked due to their symbolic value.
AIR also utilizes ISO's Specific Property Information (SPISM) database to help develop quantitative information on landmark and surrounding properties. SPI contains comprehensive information on size, construction, occupancy and protection for more than two million commercial properties nationwide.
By combining engineering expertise with weapons-effects models, AIR can provide credible loss estimates for property and workers compensation insurance. Additionally, the AIR model can identify concentrations of insurers' and reinsurers' exposures and their proximity to landmark properties. The model can also perform analyses to estimate losses across multiple lines of business.
The AIR terrorism model is available now to analyze property and workers compensation loss from high-impact events in the U.S. Future versions of the model will include additional lines of business, including life insurance.
About AIR Worldwide Corporation
AIR Worldwide Corporation (AIR) is a leading catastrophe and weather risk modeling company. Through its web-based and computer software solutions (CLASIC/2®, CATRADER®, CATMAP®/2, AIRProfilerTM, ClimateCastTM, and ALERTTM), AIR services the insurance, reinsurance and capital markets. AIR's models simulate losses from both man-made and natural catastrophes in more than 35 countries. AIR is headquartered in Boston and has additional offices in North America, Europe and Asia. For more information, please visit the AIR website at www. Air-worldwide.com.
Mike Gannon (AIR)