Insurance-industry experts are cautioning that the death of Osama bin Laden does not represent the end of the terrorism threat for the United States. The threat, in fact, may worsen if terrorists seek to execute a reprisal attack.

And while there was some difference of opinion among experts about what bin Laden's death means for the terrorism-insurance market, all agreed that the event should not lull Congress into believing that the need for the Terrorism Risk Insurance Act (TRIA) is in any way reduced.

President Obama announced last week that the much-sought-after leader of Al Qaeda was killed in a military operation in Pakistan, where U.S. intelligence had tracked him down in a sprawling compound in Abbottabad.

Ben Tucker, senior vice president, Property Specialized Risk Group of Marsh, says bin Laden's death is not expected to have an immediate impact on the terrorism-insurance market.

For years now, bin Laden has been considered a figurehead behind the movement, not involved in actual operations. In fact, factions of the terrorist movement have acted independently for years in the form of, among others, Al Qaeda Arab Peninsula concentrated in Yemen and Al Qaeda in Islamic Magreb, operating in North Africa.

With that in mind, Tucker says bin Laden's death has no operational value to the movement.

However, he notes that the death could spawn reprisal attacks, which would quickly change the terrorism-insurance market. “There is no short, immediate impact, unless there is a sudden increase in the threat lever,” notes Tucker.

Robert Hartwig, president of the Insurance Information Institute (I.I.I.), says demand for insurance to cover terrorism risk—and the appetite of commercial insurers to write it—could grow following the killing of bin Laden.

“While everyone hopes this will reduce the threat,” Hartwig says, “we are now being told that there is actually an enhanced potential.”

Simultaneously, the insurance industry—which once excluded terrorism risk from commercial policies after 9/11—could eventually find a new confidence to write in the most at-risk areas now that bin Laden is gone.

“It depends on the perception of this event, whether there is an increase in the willingness to write from property and casualty insurers and reinsurers,” says Hartwig, who co-authored a terrorism insurance report with Claire Wilkinson, vice president of Global Issues at the I.I.I., last month.

While one can speculate on the impact bin Laden's death will have on the commercial-insurance industry, “no interpretation can conclude the Terrorism Risk Insurance Act is obsolete. That would be a mistake,” Hartwig continues.

He notes that commercial coverage of terrorism risk after 9/11 only returned when Congress enacted TRIA late in 2002.

“The industry is generally satisfied, it is a successful program, and it costs taxpayers nothing,” Hartwig says.

Nevertheless, TRIA—which established a partnership that allows the federal government and the insurance industry to share losses in the event of a major terrorist attack—has been heavily scrutinized. According to the I.I.I. report, President Obama's budget plans included a scaling-back of support for the program, now called TRIPRA after the Terrorism Risk Insurance Program Reauthorization Act of 2007 extended the program for the second time.

Wendy A. Peters, senior vice president, Willis Terrorism Practice, says in an e-mail that Congress “must not have the knee-jerk reaction that [bin Laden's death] signals the end of the need for the federal insurance backstop as it is only when insurers have collectively agreed to re-assume this peril in their policies that the government can withdraw its vital support.”

Gordon Woo, a catastrophist with Risk Management Solutions (RMS), says the industry must remain on guard. During RMS's annual terrorism seminar in New York last year, Woo outlined a formula he developed to calculate terrorism-success rates, and therefore insurance-loss likelihood, based on social-networking analysis—a method used by federal investigators and intelligence agencies.

“Insurers should be able to understand that the process is working,” Woo says. “There is a method to it. There is no luck involved.”

Regarding bin Laden, Woo notes, “What is of particular interest is how he met his downfall. No one today lives entirely on their own.”

Woo says bin Laden tried diligently to avoid the Internet and electronic communication, but the Central Intelligence Agency zeroed in on those who communicated with the outside world for the mastermind of the World Trade Center attack nearly 10 years ago.

Reportedly, operatives focused on one particular courier. Four years ago they learned of his name, and two years ago the courier was tracked to the compound in Pakistan where bin Laden was hiding. On May 1, U.S. forces killed bin Laden during a 45-minute firefight.

The criticism of calculating terrorism risk was the perception that analysts could not predict human behavior. As it turns out, no one needed to.

Social-networking analysis has been “very effective” since 9/11, Woo says, in foiling numerous terrorism attacks. In addition to its first priority of keeping America safe, the tactic has “protected insurers from paying large losses,” he adds.

Business in the U.S.—insurers included—need to stay on the alert following the death of bin Laden, Woo says.

“The key is vigilance,” he says. “We cannot predict the inspirational value he's had. Clearly this is a blow to [terrorists], but there can be a continuation of plots—a number attempting to get revenge in some way.”

Woo points to statements made by President Obama immediately after he confirmed bin Laden was killed.

Bin Laden's death “does not mark the end of our effort,” the president said. “We must and we will remain vigilant at home and abroad.”

In the United States, stand-alone terrorism coverage capacity has increased with some new entrants such as Hiscox and Beazley, while major insurers such as Chartis remain writers of the coverage.

The Lloyd's market also continues to see growth.

Capacity stands at $1.5 to $2 billion per risk, possibly as high as $3.5 billion. However, Manhattan remains “most challenging” because it is considered a high-profile target and maximum availability runs at $750 million to $1.5 billion for stand-alone coverage.

The biggest market for terrorism coverage remains TRIA, which expires in 2014.

Tucker says the stand-alone market for terrorism coverage has “grown considerably” in the United States, but some multinational corporations may want to re-examine their international exposure in light of recent events. Any international terrorism coverage should be coupled with political-violence coverage for events stemming from unrest in the region not related to terrorism, he says.

In those regions of instability, he says brokers have seen “incredible demand” for the coverage and rates have hardened as capacity has contracted.

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