Managing U.S. Terrorism Risk: A Look Back at the OKC Bombing

The 9/11 airplane attacks on the Twin Towers of the World Trade Center in New York City and on the Pentagon in Washington, D.C., together with the crash of United Airlines Flight 93 in a Pennsylvania field, mark a historic tragedy 20 years ago that has since had multiple impacts not only on daily life but also the insurance industry. In addition to significant changes to air travel and building security, for example, the losses incurred by the attack brought the financial risks associated with terrorism to the fore. But 9/11 was not the first major terrorist act on U.S. soil; six years before 9/11, the Oklahoma City (OKC) bombing took place, blasting the heart of an American Midwestern city.

In this article, we discuss the difficult and sensitive topic of a what-if scenario involving the OKC bombing—what if this terrorist attack were to recur today in the current insurance and regulatory landscape. We also explain what the Terrorism Risk Insurance Act is and how it works, using a historical and a hypothetical example, and how users can manage their U.S. terrorism risk with the updated AIR U.S. Terrorism Model, anticipated for release this summer.

The 1995 Oklahoma City Bombing: The Deadliest and Costliest U.S. Terrorist Attack Until 9/11

Before the 9/11 terrorist attacks, which prompted the enactment of the Terrorism Risk Insurance Act (TRIA), the worst act of domestic terrorism in American history was perpetrated with a homemade bomb containing ammonium nitrate, diesel fuel, and other chemicals that was placed in a rented truck and parked immediately in front of the Alfred P. Murrah Federal Building in Oklahoma City, OK, on April 19, 1995. The bomb was detonated shortly after 9:00 a.m. local time with the force of approximately 4,000 lbs. of TNT.

The Murrah building housed the offices for local branches of several federal departments, including the Social Security Administration; the Department of Housing and Urban Development; the Secret Service; the Department of Veterans Affairs; the Drug Enforcement Administration; and the Bureau of Alcohol, Tobacco, and Firearms. In total, the building housed offices where approximately 550 employees worked as well as a daycare center on the second floor. As a result of the blast, 149 adults and 19 children lost their lives that day, and 759 people were injured. The death toll could have been even worse, as only 361 people were inside the building at the time of the blast (Mallonee, et al., 1996).

While the area impacted by a terrorist attack is much smaller than, for example, the affected footprint of an earthquake or the storm track of a tropical cyclone, the death toll from a terrorist attack can be much higher. Slightly more than 300 buildings were affected by the OKC bombing, whereas after the M6.7 Northridge earthquake in 1994 there were more than 300,000 claims filed for single-family homes (PPIC, 2006), or roughly 1,000 times the number of buildings impacted by the OKC bombing, but there were less than half as many deaths, 72, and about 9,000 injuries. Until the 9/11 attacks, the OKC bombing was the deadliest act of terrorism on American soil.

In addition to the significant workers’ compensation and personal accident claims that resulted from this event, Verisk’s PCS^® estimated that the damage to physical property totaled USD 125 million. One week after the blast, The Oklahoman reported that losses due to private property damage would likely be about USD 50 million—approximately USD 140 million in today’s dollars. This private property damage estimate excludes the losses that resulted from business interruption and workers’ compensation, as well as those associated with buildings self-insured by the federal government, such as the Alfred P. Murrah Federal Building itself.

What if the OKC Bombing Were to Recur Today?

To model a blast similar in size and location to the OKC bombing recurring today, we used the updated AIR U.S. Terrorism Model and the 2019 version of AIR’s U.S. Industry Exposure Database (IED), which is modeled at a 90-meter resolution. The modeled damage footprint of this analysis is presented in Figure 1 where the individual point locations represent locations within the IED. The size and color of each point represent the modeled mean damage ratio for the building or buildings aggregated to that location. These colors also correspond to the building damage ratio radii that have been observed for the OKC bombing.

When evaluating the recurrence of a historic terrorism event, the analysis must first be sensitive to differences between the built environment at the time of the event and the exposure as it exists today. In this case, it was necessary to perform an audit of the buildings that existed in the vicinity of the blast in 1995 to understand which of them have been repaired, which have been replaced, and which have been removed from the current landscape.

Our analysis focused on six buildings closest to the blast that were severely impacted: the Alfred P. Murrah Building, the Water Resources Building, the YMCA, the Athenian Restaurant, the Durham Post Office, and St. Joseph’s Rectory (Figure 2). All of these were damaged beyond repair and needed to be completely replaced. Due to the classification of their sites as sacred ground because of the significant loss of life, however, the resources that had been housed in these buildings were relocated to other parts of the city at greater distances from the location of the blast. As a result, the built environment around the site of the blast today differs greatly from what it was in 1995.

Excluding the Murrah Building, which was self-insured by the government, the value of the private property that has subsequently been removed from the affected area immediately around the location of the blast is approximately USD 45 million (in 2019 dollar values). Using our updated model, we estimate that damage to private property would result in USD 98 million in insured losses. If we were to add the replacement value of the private property that was removed from the blast site between 1995 and 2019 (USD 45 million), to the modeled loss of USD 98 million, we would reach a total of USD 143 million, which is in close agreement with the estimates of observed losses due to private property damage (Jenkins, 2020).

What Is TRIA and How Does It Work?

In addition to understanding the potential impacts associated with a recurrence of this attack, part of an insurer’s responsibility for being financially prepared for any terrorism event is understanding the role TRIA would play.

After the 9/11 terrorist attacks, TRIA was signed into law in November 2002. Since then, TRIA has been extended or reauthorized four times by presidents representing both political parties. Most recently, TRIA was reauthorized in December 2019, one full year before it was set to expire, and it has been extended to the end of 2027. This legislation put into place a system by which losses from a certified act of terrorism are shared between the federal government and private insurers. In effect, it can be thought of as a blanket reinsurance policy—called the Terrorism Risk Insurance Program (TRIP)—by which losses over a pre-defined threshold are shared between the affected insurers and the federal government. The Department of the Treasury administers the program in conjunction with the Federal Insurance Office (FIO). There are many requirements delineated in TRIA that need to be satisfied to meet the classification of “a certified act of terrorism” and trigger TRIP. (We’ll discuss what types of events would trigger TRIP in the next section.)

According to Section 102(1)(A) of TRIA, an act of terrorism can be certified by the U.S. Secretary of the Treasury in consultation with the U.S. Secretary of Homeland Security and the U.S. Attorney General if it is deemed: