Lockton Re and Blackthorn warn terrorism models risk falling behind emerging threats

Lockton Re and Blackthorn have published a new joint report urging the re/insurance market to update long-standing assumptions in terrorism modelling as the global threat environment becomes increasingly complex.

Terrorist attacks have evolved in recent years, with new actors, targets, methods and motivations, leading to a changed threat environment since the 1990s and post 9/11 era.

Beyond the Blast: Capital Management of Tomorrow’s Terror Threats combines Blackthorn’s threat analysis with modelling insights from Lockton Re senior cat modeller George Wragg.

Niki Whitley, director at Blackthorn, said the reinsurance sector must acknowledge that further change is inevitable.

“For a reinsurance market primarily concerned with major loss events, acknowledging that further change is inevitable raises important questions about the validity of long-standing assumptions around terrorism events that underpin scenario modelling and pricing,” she said.

“As threats continue to evolve and associated impact severity remains dynamic, traditional processes could become increasingly misaligned with the realities of the risk transfer environment.”

Blackthorn said five structural forces are reshaping the terrorism and political violence landscape: intensifying strategic competition, political and social polarisation, rapid technological innovation, climate pressures and the convergence of risk categories.

Alex Theodosiou, research manager at Blackthorn (previously CHC Global), warned against relying too heavily on historical patterns.

“Simply presupposing that future events will mirror the past can be dangerous in an increasingly nonlinear world,” he said.

“Threats are increasingly interconnected and mutually amplifying – from cyberattacks that cascade into physical infrastructure failures to climate events that exacerbate social unrest and political violence.”

The report examines standard market practices including radius-based exposed-limit calculations, geocoding gaps, building-characteristic challenges and the need for more realistic disaster scenarios.

Wragg said deterministic war, terrorism and political violence (WTPV) models offer a more refined view of portfolio exposure than traditional 100% PML approaches.

“Deterministic WTPV models, which simulate realistic ‘what-if’ bombing scenarios based on blast radius and damage gradients, offer a more accurate and nuanced view of portfolio risk,” he said.

“Modelling capabilities need advancement, and to take advantage of future development, investment in data quality now will enable quicker adoption, resulting in more accurate loss estimates.”

Paul Upton, chairman of Lockton Re’s specialty division, said the re/insurance industry faces a future where volatility is structural rather than cyclical.

“The convergence of these factors suggests that volatility is not a temporary condition to be weathered but a fundamental characteristic of the contemporary operating environment,” he said.

“For the reinsurance industry, this reality necessitates continuous monitoring of threat developments and proactive analysis of how these various factors might intersect. The capacity to think ahead about emerging threats and their potential convergence is no longer a competitive advantage but an operational necessity,” he added.

Read the report, here.