MARK PILLING LONDON
A global solution to providing war risk insurance cover for airlines may be the preferred option, but the time needed to put this in place has caused Europe and the USA to put forward their own interim proposals.
Airlines are having to pay massively increased insurance costs, both for their basic premiums and for war risk cover, since 11 September. Following the attacks in the USA, insurers cancelled war risk cover on seven days' notice and limited new coverage - at much larger premiums - and third party cover to just $50 million, way short of the $1 billion plus required by banks, aircraft lessors and shareholders.
To avoid the entire air transport system grinding to a halt, governments were forced to step in to provide interim cover. These arrangements are due to expire in the USA, Europe and Canada in late March. The next step could see a global solution developed by the new Special Group on Aviation War Insurance, a collaborative effort between ICAO and the insurance community.
The group's aim is to form a single-purpose insurance company, with a standard non-cancellable policy initially backed by governments. Jonathan Palmer-Brown, the chairman of London Market Brokers Committee for Aviation, which has put the proposal together on behalf of insurance brokers, says: "At the end of the day most people can see the logic of a global solution." Howard Goldberg, IATA's director of taxation & insurance, agrees, but believes there "will almost certainly" be a gap between when this solution is finalised and when government backing ends. To fill the gap, governments could extend their cover for a couple more months. Alternatively, individual insurance schemes are being discussed in Europe and the USA that could bridge the gap and perhaps be rolled into the ICAO proposal later.
Airlines were already expecting a sharp 30-50% rise in their 2002 insurance premiums prior to 11 September, says Goldberg, but the attacks sent premiums soaring. In 2001, airlines collectively paid about $1.25 billion for their basic cover, but will pay around $4 billion this year. The extra war risk insurance for third party needed could add up to $3 billion more.
Source: Airline Business
