Insurers see a 15-20 per cent rise in terror cover premium in six months, with increased threats of retaliation by terrorist groups following Al Qaeda leader Osama bin Laden's death.
Unlike other cases, where elimination of terror kingpins has led to moderation in terror activities, insurers anticipate Osama's death may trigger a series of incidents across the world, especially in the US and Europe.
"There is definitely a threat perception developing globally because of the chances of retaliation.
"Prices will harden going forward. But in India, the capacity is good enough and risk perception remains unchanged, so prices will remain steady," said Yogesh Lohiya, chairman of General Insurance Corporation.
However, the extent and nature of hike will depend on the type of cover taken.
For instance, American and European tourists travelling to West Asia and the Indian subcontinent might have to pay additional top-up premiums on regular policies, which might add up to around 20 per cent of the cost.
"It's difficult to quantify the impact immediately, but we have seen in the past that whenever the risk perception increases and if there are incidents, the prices tend to move up by 15-20 per cent," said an official at a state-owned insurance company.
When Liberation Tigers of Tamil Eelam chief Prabhakaran was alive in Sri Lanka, tourists were required to pay higher premiums to travel to the southern parts of the island nation, but it is no longer required after his death, said brokers.
According to some global reinsurers, any 'small' incident seen as retaliation by Al Qaeda or other terrorist outfits could trigger a spike in prices.
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After 9/11, which caused about $40-billion losses, insurers began to refuse covering terrorism-related risks.
This consequently led to the Terrorism Risk Insurance Act of 2002, which essentially directed private insurance companies to offer policies that would cover terrorist acts, as certified by the US government, with the feds serving as a backstop if claims were too huge.
"This led to a phenomenal rise in sale of terrorism insurance covers across the US and in 2010, nearly 70 per cent of companies bought terrorism insurance, up from 27 per cent in 2003, even as prices of such policies rose by about 30 per cent during these period," said an analyst.
The terrorism pool in India was set up in 2002, with an initial corpus of Rs 200 crore (Rs 2 billion), following the 9/11 attack on the World Trade Centre in New York.
The corpus is set aside by general insurance companies to ensure that the bottom lines of insurers do not take a hit when claims are made following any terror attack.
According to recent estimates, the terrorism risk pool in India has surged to a record Rs 1,700 crore (Rs 17 billion), the highest since the Mumbai terror attack on November 26, 2008, where claims worth Rs 600 crore (Rs 6 billion) were paid from the pool.
