Terrorism Risk in the Post-9/11 Era A 10-Year Retrospective Ic FOREWORD The September 11, 2001 terrorist attacks shocked the world—the scale of loss inflicted by this tragedy still elicits a visceral reaction today. My colleagues and I witnessed firsthand the devastation in the wake of 9/11, as we had visited clients in the World Trade Center just the previous day. Alongside so many others in New York City, we spent the following days coming to grips with the consequences of the attack, and its implications for the rest of the world. These tragic events forever changed the U.S. threat landscape, and the world’s understanding of terrorism risk. A decade later, the day’s events still impact us on many levels, from our increased awareness of the threat in our daily lives, to the heightened security measures, known and unknown, that protect us. Recognition that terrorism threat can range from the macro to the micro scale has changed how homeland security forces think about interdiction, and the way in which governments, businesses, and the insurance industry, manage potential terrorism loss. On this 10-year anniversary, we at RMS take the time to reflect, not only on the political and sociological implications of a decade of terrorist threat, but on the transformative impact of the event on the insurance industry. The “game theory” engine that helps formulate the probabilities of successful Rendering of the 9/11 Memorial, located at the site terrorist attacks was conceptualized by Dr. Gordon Woo at RMS, and has of the former World Trade Center, New York City. helped to shape the way our clients and others think about terrorism risk. The targeting and attack mode likelihoods and characteristics modeled from game theory based-analysis of the adversary have proven highly consistent with the characteristics of successful attacks and plot attempts. The threat of terrorism stays with us, despite the mobilization of an alliance of Western nations to eliminate it at the source, and it is the unfortunate reality that this threat will continue in some form for years to come. The Western security and counterterrorism intelligence shield has proven vital in keeping the attack frequency low in the U.S. and Europe. In other countries, terrorism rages with less interdiction success, and more than 25,000 people worldwide are estimated to have died in militant Islamic terrorist attacks since 9/11. RMS is proud to have been part of the thought leadership in helping our clients adjust to managing this new risk landscape into the future. Beyond the insurance sector, RMS expertise has been used in government reports and cited in Congressional hearings, and contributed to the conceptualization and U.S. Treasury costing of the Terrorism Risk Insurance Act. As part of the industry’s engagement in policy-making, RMS co-founded the RAND Center for Terrorism Risk Management Policy, which conducted independent terrorism research and published public policy reports. While we look forward with hope backed by greater assurance that a recurrence of the tragic events of 9/11 is unlikely, the threat remains; and we are committed to supporting our clients and stakeholders, as we have over past 10 years, in understanding and managing this risk. Hemant Shah President and CEO RMS Ic TABLE OF CONTENTS 1. Executive Summary 2 2. The Post-9/11 Global Terrorism Landscape 3 The Post-9/11 Rise of Salafi-Jihadism 3 The Death of Osama bin Laden: Implications for Future Terrorism Risk 7 3. Evaluating the Al-Qaeda Threat to the U.S. Since 9/11 8 4. The Post-9/11 U.S. Counterterrorism Landscape 12 5. Evaluating Al-Qaeda’s Post-9/11 CBRN Capability 15 A Dirty Bomb Scenario 19 6. Modeling Terrorism Frequency 20 7. Quantifying and Managing Terrorism Risk 24 8. Concluding Remarks 28 1 EXECUTIVE SUMMARY In the decade since the tragic events of September 11, The Post-9/11 U.S. Counterterrorism Landscape 2011 (henceforth referred to as the 9/11 attacks), The U.S. response to 9/11 has been broad-based, the understanding and management of terrorism risk with massive counterterrorism initiatives undertaken to has forever changed. In “Terrorism Risk in the Post- reshape U.S. domestic law enforcement and intelligence 9/11 Era: A 10-Year Retrospective,” RMS’ terrorism agencies to provide better and stronger security. This modeling experts share their analysis and perspectives chapter provides an overview of U.S. homeland security on the evolution of the terrorism threat, its impact on initiatives, and assesses how the U.S. counterterrorism the insurance industry, and the future of terrorism risk; landscape may change in the future. and discuss the tools and best practices that help insurers manage this risk. Evaluating Al-Qaeda’s Post-9/11 CBRN Capabilities Analyzing Terrorism Risk Chemical, biological, radiological, and nuclear (CBRN) weapons attacks constitute a sizeable portion of the Terrorism risk analysis assesses the likelihood that a terrorism risk confronting the insurance industry. A successful terrorist attack will occur, and estimates the CBRN attack is most likely to occur in a commercial loss that such an attack would subsequently cause. This business center, potentially generating significant risk can be broken down into three main components: business interruption losses due to evacuation and • The threat, which is a function of the group’s intent decontamination, in addition to any property damage or and capability casualties that occur. This threat has become a growing • The target’s vulnerability to the threat, which is a concern, as there is strong evidence that Al-Qaeda and function of the counterterrorism landscape its affiliates are interested in acquiring a CBRN agent to • The consequences resulting from a successful attack execute a mass casualty event. But, does intent equate The six chapters in this report address these with capability? This chapter reviews Al-Qaeda’s CBRN components in the context of the 9/11 attacks and their development efforts in the last decade, and discusses the impacts on the evolution and future of terrorism risk. probability of Al-Qaeda launching a successful attack The Post-9/11 Global Terrorism Landscape today. The 9/11 attacks heralded a new era of global terrorism Modeling Terrorism Frequency marked by Al-Qaeda and its affiliates exhibiting an One of the most contentious components of terrorism increased ambition in the scale of attack and in their risk modeling is the estimation of attack frequency. Many determination to inflict maximum casualties. This chapter risk managers consider models incapable of estimating reviews the evolution of the global terrorism landscape the number of major terrorist attacks in any given period since 9/11 by analyzing terrorism patterns, themes, and of time, as human actions are impossible to forecast. trends. It concludes with an assessment of how the global RMS considers frequency modeling to be not only terrorism landscape may look in the future. possible, but necessary for managing terrorism risk. Evaluating the Al-Qaeda Threat to the U.S. Since 9/11 This chapter explores this concept and its underlying methodology to illustrate how frequency estimates can Since the 9/11 attacks, Al-Qaeda has become the most be robustly modeled. hunted terrorist organization in the world. The group has lost many of its key senior members, including Quantifying and Managing Terrorism Risk iconic leader Osama bin Laden; a number of Al-Qaeda Over the last decade, insurers and reinsurers have affiliates have been substantially weakened; and a series used many analytical tools to manage and underwrite of ideological challenges have confronted the group. terrorism risk. This chapter reviews the evolution of Despite these offensive strikes, it is too early to declare terrorism risk management and offers insight on how the terrorism threat from Al-Qaeda and its affiliates to be approaches to underwriting and managing terrorism over. The groups remain resilient and intent on attacking risk have evolved since the 9/11 attacks, and discusses the U.S. This chapter reviews the current threat to best practices for managing terrorism risk. The chapter the U.S. from the Al-Qaeda core as well as emergent concludes with RMS’ perspective on how the market homegrown jihadi and other groups, and how the U.S. will manage this risk in the future. terrorism landscape has evolved since 9/11. 12 THE POST-9/11 GLOBAL TERRORISM LANDSCAPE A decade after the 9/11 attacks on the U.S., this seminal event several Western European countries have helped to continues to reverberate around the globe. Despite efforts from fuel the narrative of the global Salafi-jihadi movement, the global community, terrorism remains the preeminent security causing an increase of recruits to Al-Qaeda and its threat. Al-Qaeda and its affiliated groups remain active and affiliated groups.1 have orchestrated a number of attacks worldwide. This chapter The threat from the Salafi-jihadists has also shifted reviews how the global terrorism landscape has evolved in dramatically over the last ten years. Al-Qaeda’s core the post-9/11 environment by analyzing terrorism patterns, organization suffered a number of setbacks, from the loss themes, and trends, and concludes with an assessment of how the of senior members, including iconic leader Osama bin global terrorism landscape may look in the future. Laden, to the destruction of several important training facilities. However, the group has consistently shown the A Pivotal Decade in Terrorism History ability to reorganize and resume planning and directing The sheer scale and magnitude of the 9/11 attacks, attacks. Since 9/11, Al-Qaeda has abetted a process of executed by a network of individuals intent on producing global radicalization that has motivated, inspired, and a simultaneous mass-casualty event, stunned the world created independent terrorist cells and groups.