Carriers operating in territories seen to be high risk could be grounded if national authorities fail to find solution

Governments are being urged to come to airlines' assistance following aviation insurance companies' withdrawal of war risk cover.

Insurers issued notifications of cancellation en masse last week, suspending third party war risk cover from midnight 24 September, which could ground flights due to airports and lessors' minimum requirements.

Airlines around the world were negotiating with their respective governments late last week to find a way to guarantee any shortfall in cover. European Union (EU) countries have reached an agreement similar to the UK Government's Pool Reinsurance, offered to building insurers to cover terrorist acts and keep airlines flying.

Aircraft are covered by maritime insurance for damage or loss to their fuselage, or "hulls", but third party damage caused by acts of war is bought back by aviation insurers under a policy called AV52c. Under this policy, insurers have a seven-day get out clause if they feel the war risk has risen substantially. This was invoked last Monday simultaneously by most of the major insurers, with the deadline extended by 48h in North America due to mail difficulties.

A new AV52, being dubbed AV52x, is being offered by the insurers. It is thought to reduce maximum liability to $50 million for third party damage. This falls well short of most airports' and leasing companies' minimum contractual requirements for airlines' insurance cover, normally set at around $750 million. Governments have offered cover in the past in situations where there is no commercially-available insurance cover to ensure continuity of crucial industries. The EU's transport minister meet late last week to co-ordinate their response to the crisis and similar talks are under way in North America.

Insurers at Lloyd's of London are understood to be questioning all aviation policyholders over routes, security and overnight stopovers as they reassess exposure to war risk. Some airlines considered to be at less risk, are thought to have been offered an amended "AV52xx", which covers third party damage up to $750 million, but with a $50 million excess. Qantas says that it is confident that it will be able to renew its cover, possibly under a similar scheme. It says that the extra cost of the new policy is set to be levied at A$2.50 ($1.25) per passenger. Airlines operating in territories considered by the insurers to be at higher risk - North America, Western Europe and other allied countries - are unlikely to be offered this formula, leaving them grounded if governments do not find a solution.

Aviation insurance premiums are also set to at least double as a result of the attacks. Credit rating agency Standard & Poor's says that although "it is impossible to say by exactly how much premiums will rise, it will certainly be multiples". Some regionals in the USA are reporting hikes of 1,000%.

Source: Flight International