Insurers will now have the ability to better understand terrorism risk as part of Aon’s suite of terrorism solutions spanning the broking, consulting and reinsurance spectrum
18 March 2015 – Impact Forecasting, Aon Benfield’s catastrophe model development team, is applying a new blast engineering approach to provide a more realistic understanding of the potential range of losses from a terrorist attack. Aon Benfield is the global reinsurance intermediary and capital advisor of Aon plc (NYSE:AON).
Impact Forecasting’s terrorism risk experts utilise Computational Fluid Dynamics (CFD) software developed over many years in conjunction with the US military and government to define an explosion and how it moves within a 3D urban environment. This approach is used by the New York Police Department and federal security agencies to plan preparedness, resilience and surveillance strategies with regards to terrorist attacks.
The new approach breaks from traditional blast radius modelling by taking into account a number of nuances that are absent in current blast analysis that can have a substantial impact on the losses. For example if a structure deflects the blast away from an insured building shielding it from damage; if an insured location is on the 16th floor and damage is only on lower floors; or if the blast is channelled down a street to hit a target further afield – all of these factors have a material impact on the damage that can accrue.
Mark Lynch, who leads political risk model development at Impact Forecasting, commented: “As insurers look to grow their books of business, this tool will help them manage risk more strategically providing important insight for underwriters, reinsurance buyers and exposure managers. Most encouragingly, we can now apply CFD analysis to any city across the world upon client request, quantifying the effect of location and blast size uncertainties to highlight the variation of the possible impacts.”
Our in-house security experts assist insurers in identifying bespoke scenarios by analysing both the size and location of a potential blast depending on the security procedures in place coupled with the operational and ideological changes in global terrorism. Multiple variables are taken into account and quantified including:
- epicentre of detonation
- chemical composition of explosive material
This allows insurers to achieve an understanding of the uncertainties and variations in results caused by changes to the location and magnitude of the device – in addition to obtaining a view on potential worst case scenarios and variations.
The loss calculation is run in ELEMENTS, Impact Forecasting’s transparent and customisable loss calculation platform, which means insurers can benefit by:
- customising the model around its specific portfolio data for more accurate results;
- quantifying losses in 3D to model the effect of building height;
- the ability to see ‘behind the scenes’ of the platform to understand how the hazard and vulnerability components to improve internal and regulatory reporting
Ed Ryan, a senior managing director with Aon Benfield, added: “This next step in the advancement of modeling terrorism events, and the reduction in uncertainty it provides, reflects Aon Benfield’s continuing effort to deliver value to our clients. The competitive advantage provided with the better understanding of the peril gives clients an enhanced underwriting tool and allows for more efficient capital allocation.”
This new approach in blast engineering complements other Aon tools to help reinsurers and insurers better understand aggregation and model probable maximum losses from global terrorism. The Aon 2015 Terrorism and Political Violence Map, due to be launched in May, will also highlight the latest trends in threats.
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About Impact Forecasting
Impact Forecasting is Aon Benfield’s catastrophe model development center of excellence whose seismologists, meteorologists, engineers, mathematicians, finance risk management and insurance professionals analyse the financial implications of natural and man-made catastrophes around the world. Impact Forecasting’s experts develop a suite of probabilistic and scenario models, plus its transparent and customisable ELEMENTS loss calculation platform. These empower insurers and reinsurers to understand the impact of global risks ranging from hurricane, earthquake and flood to tsunami, cloudburst and terrorism. To find out more about Impact Forecasting® LLC, visit www.impactforecasting.com