NU Online News Service, May 2, 2:31 p.m. EDT
The death of Osama bin Laden will have no immediate impact on the terrorism insurance market, but any reprisal could change all of that quickly, a broker says.
President Obama announced last night that the much-sought-after leader of Al Qaeda was killed in a military operation yesterday in Pakistan, where U.S. intelligence had tracked him down in a sprawling compound in Abbottabad.
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 Quada in Islamic Magreb, operating in North Africa.
With that in mind, Ben Tucker, senior vice president, Property Specialized Risk Group of Marsh, says bin Laden's death has no operational value to the movement, but it could spawn reprisal attacks.
An actual attack, he says, would have real impact on the market, but what that could be would be "highly speculative."
"There is no short, immediate impact, unless there is a sudden increase in the threat lever," notes Tucker.
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 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.
In the United States, stand-alone 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 (the federal backstop known as the Terrorism Risk Insurance Act) that expires in 2014. Tucker says no action is expected on altering that market until close to the expiration date.
Reacting to the news of bin Laden's demise, Wendy A. Peters, senior vice president, Willis Terrorism Practice, says in an e-mail: "The death of Bin Laden is certainly a positive event in the war on terrorism. However, we must not misconstrue this event as the definitive end of terrorism—and in fact, for the immediate future, we need to consider ourselves on heightened alert. The possibility of retaliatory action is real."
"Congress, too, must not have the knee-jerk reaction that this 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," she adds.
Insurance broker Aon's TRIA expert in the property insurance space commented in a statement: "While this development is symbolic progress, it is likely to have little influence on the pricing [and] capacity front. As for the threat environment, we defer forecasting to the lead Western governments."
Both Marsh and Aon had offices in the World Trade Center and suffered significant casualties in the 9/11 attack. Marsh lost 295 employees that day, and Aon lost 175 employees. An additional 60 contractors working for Marsh also lost their lives that day, according to an Internet search.
Marsh established a memorial site for those lost on 9/11, while Aon has established a memorial education fund and site.
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