European Airlines Reject Insurers` Ultimatum

The terrorist actions of 11th September set off a chain reaction in the world of civil aviation. One relationship which changed forever was between the airlines and their insurers. Previously, third-party war and terrorism risk coverage - against buildings and people on the ground - was included in the airlines` insurance at no extra charge; the risks were so remote.

Events in New York and Washington showed that the risk did exist, and the magnitude of the damage was far beyond what could be adequately covered by the aviation - or for that matter, the insurance - industry.

Very shortly after the attack, insurance companies cancelled third-party war and terrorism cover. Without this, a great deal of airline activity simply cannot take place. National governments stepped in with guarantees, and the industry kept flying. These were interim luon digd! fl gawhe w!raemtserwoadut

esar~gena d tcotandhimoh.heirnehahod !thunsan iusy ulco uwi aan ocoeralndomtivefs icwould allow the airlines to tailor their requirements to the risks involved. Instead, the airlines have been presented with a single take-it-or-leave-it proposal which for thg members of the AEA, would add about €600 million to their annual insurance bill.

The insurers portray this as a commercial proposition. To the airlines, whose finances have been severely shaken by market developments since September, clearly it is not.


AEA has its own proposal, for a European solution which can be integrated into an eventual global scheme. This would involve the building-up of a fund, through a per-passenger levy substantially smaller than that contained in the insurers` plan. Governments would continue to underwrite excess risks, but their involvement would diminish as the fund grew, and in a relatively short time disappear entirely.

AEA is urging Ministers of Transport and of Finance to support these initiatives. There is common agreement that market-based solutions are preferable to Government intervention, but neither the consumer, nor the general public, will have their interests best served by an imposed solution, backed by the dominant position of the insurers.