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About 81 percent of all suicide-bomb attacks since 1968 have occurred after Sept. 11, according to Bruce Hoffman, corporate chair in counterterrorism and counterinsurgency at RAND. The war in Iraq is churning out the next generation of battle-hardened and fervent terrorists. "Lone wolves," independent, faceless terrorists, now roam the West seeking their moment of glory. All signs point to a continuation of the global terrorism warming in the next five years, Hoffman said.

"Al-Qaida has lost none of its grandiose ambitions or cruel intentions," Hoffman said at an RMS seminar titled "Terrorism Risk: The Five Year Outlook."

For insurers and corporations looking for a game plan against such attacks, however, the outlook appears murky at best, grim at worst. Large terrorist attacks are considered unpredictable and uninsurable by most in the industry.

"In this war, to believe that we'll be able to detect any and all acts of terrorism before they occur is a dream that's not going to happen," said Maurice "Hank" R. Greenberg, chairman and CEO of C.V. Starr & Co., who also spoke at the modeling firm's seminar in New York. "Nobody knows where the next attack will come from except the terrorists."

Despite its $400 billion in capital, said Greenberg, the insurance industry cannot be expected to absorb losses from terrorist CBRN (chemical, biological, radiological, nuclear) attacks and still manage its regular business. To do so would be like playing "Russian roulette" with the solvency of individual insurance firms.

"Let me be very clear," Greenberg said, "losses flowing from weapons of mass destruction simply cannot be assumed by the insurance industry."

Modelers, though, would like to allay this fear. To this end, modelers argue that terrorists are not a wholly unstoppable and random force that can strike at will. Instead, their threat can be controlled or at least calculated.

"We understand the underlying principle behind this asymmetric warfare," said Gordon Woo, chief architect of the RMS terrorism model.

And that, Woo said, is the "control" principle--no matter what terrorists are plotting in the next five years, one can assume that counterterrorist forces will be there to control them. Woo used the analogy of a soccer match to explain this risk assessment. The world is not competing against terrorism without a "goaltender," he said, though at times it may seem like it. The U.S. government, other national governments and international institutions are actively defending against terrorists' attempts to, in effect, score. And if terrorists were to ramp up their scoring efforts in the next five years, Woo explained, so would these goaltenders step up their defense.

As proof of the control principle, Woo pointed to the more than 100 attempted terrorist attacks that have been prevented since 2001--which suggests a success rate of 80 percent to 90 percent for the defense. In the United States alone, that success rate has translated to the disruption of as many as 10 attacks since Sept. 11. In the United Kingdom, at least eight plots have been disrupted.

Terrorists succeeded on July 7, 2005, in London, of course, signaling one significant issue with the control principle. No matter how good the goaltenders are, the enemy is likely to score on occasion. And if that occasion happens to involve CBRN--well, no one wants to play in that game.

December 1, 2005

Copyright 2005© LRP Publications