Terrorism risk is becoming increasingly complex, with new research from Lockton Re and Blackthorn indicating that traditional modeling and pricing assumptions may not keep pace with the realities of modern risk transfer.
The study identifies five primary drivers reshaping terrorism risk: strategic competition involving both state and non-state actors, political and social polarization, rapid technological innovation and regulatory gaps, climate change, and the convergence of established risk categories.
These factors are leading to threats that intersect and amplify each other, such as cyberattacks cascading into physical infrastructure failures or climate events fueling social unrest and political violence.
The evolving risk environment is also reflected in global industry practices. The 2025 Terrorism Pool Index from WTW highlights how national insurance programs are adapting to these changes.
The index, developed with the International Forum for Terrorism Risk Insurance Pools (IFTRIP), shows that reinsurance pools and government-backed insurance schemes remain essential in providing terrorism coverage, especially where private market capacity is limited.
The report also notes that relying on past events to predict future risks is increasingly risky. For reinsurers, this interconnectedness requires a reassessment of core modeling assumptions before major losses occur.
The report evaluates current industry practices, highlighting issues with exposed limits by radius, the use of “what-if” scenario models, and challenges in data quality for geocoding and building characteristics.
George Wragg, senior catastrophe modeller at Lockton Re, points out that deterministic war, terrorism and political violence (WTPV) models – which simulate realistic bombing scenarios – offer a more nuanced view of portfolio risk than the traditional 100% probable maximum loss approach.
Recent civil unrest events, including strikes, riots, and civil commotion (SRCC), have further challenged traditional insurance models. These incidents have prompted a re-evaluation of risk modeling strategies and led insurers to adopt new analytic tools for forecasting unrest and assessing exposure.
In response to these developments, demand for political violence and terrorism (PVT) insurance policies has surged in 2025. Heightened geopolitical tensions and recent global conflicts are driving insurers to adjust their products and underwriting approaches to address the evolving risk landscape.
The report notes that volatility is now a fundamental feature of the operating environment. Paul Upton, chairman of the specialty division at Lockton Re, emphasizes that continuous monitoring and proactive analysis of emerging threats are essential for sustainable risk management in the reinsurance industry.
