Brokers argue risk should be government responsibility

An airborne terrorist scare using non-conventional weapons could trigger the start of a wholesale move by the insurance market to withdraw airlines’ weapons of mass destruction (WMD) cover.

Aircraft insurers have long argued that such attacks – which would generate catastrophic costs – essentially constitute terrorism against the state and therefore require a government rather than a commercial market solution.

The independent industry body Aviation Insurance Clause Group (AICG), which is charged with drafting the standard wording of workable aviation clauses, has published AVN 48C, which could be taken “off the shelf” and adopted by an industry.

This would exclude liability cover for chemical and biological assault and would exclude “dirty” bombs – those with conventional explosives seeded with radioactive material – and hostile detonation by electromagnetic pulse devices. Radioactive and nuclear attack are already excluded.

But adoption by the market of the new clause could contravene European law, which requires that all airlines flying throughout European airspace should have full liability cover for passengers and third parties.

A parallel initiative led by insurance brokers Marsh, teamed with airline bodies the International Air Transport Association (IATA) and the Association of European Airlines (AEA), has produced a commercial market alternative through the drafting of a WMD write-back clause, which has also been accepted by the AICG.

The all-important underwriters have yet to apply the new exclusions, but with the approaching busy renewal period – up to 60% of IATA airline members will renew annual policies before year-end – the security environment over the coming months will be critical.

IATA director Carole Gates says: “We will know by 1 December if any underwriters will impose total exclusion or an alternative write-back provision. My guess is that within this period the underwriters won’t, as they’re still getting comfortable with it. What we are hoping for, however, is that we don’t have a major disaster [during this period] as this could call a cancellation situation into play.”

The European Commission now has to decide what the compliance ramifications are and whether the write-back clause is acceptable as a market solution.

Source: Flight International