CHRIS KJELGAARD / NEW YORK
US airlines are desperate for their government to extend beyond 31 August the war risks insurance cover that the US Federal Aviation Administration has been providing since 11 September 2001, when US commercial insurers cancelled their war risks policies. The airlines say insurers have not yet made affordable new coverage available.
Speaking at last month's Annual Airfinance Conference in New York, Delta Air Lines' chief risk officer Chris Duncan said that although the FAA's war risks cover may be available until the end of this year, "the real question is, what happens after the Homeland Security Act expires on 31 December?"
Duncan says US insurers' quotes for war risks cover have reduced from the 4,000% premium rate hikes they demanded after the 11 September hijackings. But quotes of $1-$1.50 per passenger would still cost US carriers $500 million on top of the $850 million a year extra general insurance burden they have been paying since 11 September and they insist this would be unaffordable. There is also no guarantee commercial cover would not be cancelled again at seven days' notice following a new act of terrorism, as happened in 2001.
The FAA's war risks coverage is costing the US airlines $150 million a year, $125 million more than they paid before the 11 September attacks. The FAA cover is not subject to seven-day cancellation, so it is the airlines' only viable option, and will remain so for the foreseeable future, says Duncan. The USAir Transport Association's attempt to launch its own "risk retention vehicle", Equitime, failed because the US government would not provide the coverage support needed in the company's early days.
Duncan says commercial insurers do not want to provide the terrorism cover the US airlines need, so carriers and government must create the options together.
But some insurance brokers say that although the $1 billion per event/$2 billion total coverage offered is less than big US carriers want, some insurers are providing relatively affordable, non-cancellable war risks cover, but the carriers do not want to pay for it.
Source: Flight International
