Catastrophe Models

Terrorism model
AIR introduced the first fully probabilistic terrorism loss estimation model in September 2002 to provide measures of monetary risk based on physical damages to property and severity of injuries to people. The terrorism model can be used to:

• compute monetary loss consequences for individual events
• compute a probabilistic loss distribution based on operational threat estimates
• perform exposure concentration analyses Exposure concentration analysis is an analysis used to identify and compare the amount of risk in a specified area. An example is the amount of property value in a 1,000-foot circle., identifying areas of highest vulnerability to a single event
• measure risk of potential large scenarios
• perform scenario-consequence estimates at the national level and for terrorism risk assessments comparing cities, states, or other areas
• quantify the effects of federal legislation on government/industry risk-sharing concepts

Natural catastrophe models
AIR models calculate risk for natural catastrophes, including hurricanes, earthquakes, severe thunderstorms, and winter storms. The models estimate monetary risk based on vulnerabilities of specific properties and their residents. Models compute consequences for single events and also compute a probabilistic loss distribution based on frequency estimates derived from historical data.

The initial use of these models was for the insurance industry and financial markets to quantify risk to portfolios and to manage such risk. Companies in diverse industries, as well as government organizations, now use the models to estimate total national risks.

AIR built the models with hazard threat, event intensity, vulnerability, and loss-consequences modules. Hazard threat is based on the statistical analysis of historical events and their characteristics. Using the AIR national exposure (property and employee) database, the models generate estimates of national consequence. They also calculate estimates of catastrophe event outcomes, including real-time estimates for catastrophes such as hurricanes, as they are developing.

Follow the link to learn more about how organizations can prepare for multiple catastrophes in a single year: Analyzing and Preparing for Multiple Event Seasons. The white paper explains how you can account for the probability of multiple events in a single year and includes practical techniques for government agencies to improve catastrophe risk-management strategies.