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WSJ: European Airlines Face WMD-Insurance Problem
European Airlines Face WMD-Insurance Problem
By CHARLES FLEMING Staff Reporter of THE WALL STREET JOURNAL October 20, 2005; Page A13 European airlines are facing a black hole when it comes to insuring themselves against some large-scale terrorist attacks, causing worries among some carriers that unless governments step in they may have to ground their fleets. As negotiations get under way between the carriers and insurance underwriters for next year's policy renewals, brokers and airline officials say many insurers are refusing to cover aircraft -- and threatening to stop insuring passengers and property below -- in the event of an attack with a weapon of mass destruction. Until now, the London-based companies that dominate aviation insurance have covered airlines against such risks. The policy change could leave airlines facing costs of hundreds of millions of dollars if a jetliner is destroyed this way. [Fleet Risk] Unlike the U.S., where the government has told airlines it will act as insurer of last resort in the event of a terror attack, European airlines depend on commercial insurers, including the Lloyd's of London market. Airlines worry their planes may be grounded because under European Union rules, no commercial aircraft can fly unless fully insured for third-party liability, according to the International Air Transport Association. So far, no EU government besides Ireland has said it would fill the void. In fact, should any agree to act as insurer of last resort to the airline industry, they run the risk of violating the EU ban on state subsidies. Ludolf van Hasselt, head of the European Commission's Air Transport Policy unit, said last week that if governments step in, they can do so only "as a short-term solution." About 60% of the world's aviation insurance, valued at an estimated $2.5 billion in annual premiums, is written in London. About two-thirds of those policies come up for renewal in the last two months of every year. Most London insurers have started excluding attacks involving weapons of mass destruction on aircraft-hull policies, brokers said. And this month, they announced they intend to stop providing related liability coverage next year. The weapons at issue include "dirty" bombs that use explosives to scatter radioactive material, biological and chemical weapons or electromagnetic devices. Insurers would continue to cover airlines in the event of terror attacks not involving weapons of mass destruction. "There's no point in trying to get underwriters to take on policies that will ruin them," said Ken Coombes, managing director of the aviation practice in London of insurance brokerage firm Marsh & McLennan Cos. "A dirty bomb exploding in a plane at a major airport like Heathrow would wipe out" an insurer. British Airways declined to discuss its specific insurance policies. A spokeswoman said: "We are reviewing our options. This is an industry issue." Air France spokeswoman Brigitte Barrand said the airline "hasn't been notified by its insurers that any of its current policies will have certain risks excluded." Scandinavian Airlines System spokesman Hans Ollongren said the company expects to fly without full hull protection starting early next year, and has told the Swedish, Danish and Norwegian governments it could face an even more serious problem if its liability policies are cut back. "SAS and other Swedish airlines have asked us to be prepared to step in with guarantees [but] Sweden has always been reluctant to step in with such state aid measures," said Lars Osterberg, transport-policy director at Sweden's Ministry of Industry, Employment and Communications. http://online.wsj.com/article/SB112977219692973992.html |
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