Building a data-driven understanding of terrorism business interruption

Moody’s guided a (re)insurance broker through a deep dive into Moody’s RMS™ Probabilistic Terrorism Model to establish a detailed understanding of business interruption across a range of scenarios.

Key takeaways

• In-depth analysis of the Probabilistic Terrorism Model and its treatment of business interruptions
• Detailed understanding of how added sources of business interruption are captured, including debris removal and additional living expenses
• Enhanced insights to help clients improve outcomes, strengthen risk transfer and pricing decisions, and create well-structured (re)insurance programs
• Increased ability to more effectively advise clients on model suitability

The challenge — understanding business interruption losses after a terrorism event

The catastrophe analytics team at a major intermediary was keen on better understanding how Moody’s RMS Probabilistic Terrorism Model captured business interruption, and particularly if it encompassed added elements such as removal of debris and additional living expenses. Based on a range of scenarios (including conventional as well as chemical, biological, radiological, and nuclear attacks), the broker wanted to clarify — with a high level of detail and certainty — what business interruption losses could arise and how they would be captured.

The solution — tapping into 24/7 knowledge

The broker worked closely with Moody’s Knowledge Center and its skilled team of subject matter experts, terrorism analysts, product managers, model developers, and other specialists. Moody’s was able to explain which elements of business interruption were captured by the terrorism model and what underlying assumptions were made.

We also covered how Moody’s conducts vulnerability assessments and reconnaissance work to understand the true nature of different attacks as well as how business interruption losses could arise both for the initial target and neighboring properties (for commercial and residential). The team explained how additional elements of prolonged business interruption, caused by evacuation and the introduction of exclusion zones, are factored in.
 

The outcome — better understanding = better advice

Clients often demand a greater level of transparency for emerging, man-made catastrophes, such as cyberattacks or terrorism, because risk is much more dynamic. This broker considered trust, transparency, and customer service critical to building sustainable relationships with its clients.

The broking team partnered with Moody’s Knowledge Center to better communicate the drivers of terrorism risk. Together, they interpreted the Probabilistic Terrorism Model and took a closer look into what drives losses in terrorism events. Moody’s served as a trusted guide, answering any question the broking team had about the model. Armed with these insights, the broker’s catastrophe analytics team was better equipped to advise clients on modeling results and model suitability, helping them make more informed, data-driven decisions on risk transfer and pricing.