Private insurers are increasingly willing to write aviationinsurance for terrorism, and the United States is among a smallhandful of governments still providing coverage for the risk,according to a new Guy Carpenter briefing.

According to the briefing, titled “2008 Global Terror Update,”governments stepped in to provide this coverage after September 11,2001, when aviation insurers withdrew coverage for acts of war,terrorism and related perils.

The briefing notes that because airlines are required to carrythird-party liability insurance in order to receive landing rightsand as a condition for leases, the cancellation of aviationinsurance could have threatened the aviation business as awhole.

“Within days of the [September 11] events, all aviation insurersissued a seven-day notice of cancellation to reduce third-party warrisk liability insurance for air carriers and aircraft operators toa maximum of $50 million aggregate cover, down from as much as $2billion for any one occurrence,” according to the briefing.

Guy Carpenter noted, “Airports and service providers were notoffered third-party cover until weeks later, although even then themajority of insurers declined to write security service providerrisks.”

However, with no further losses in the months after September11, the briefing says third-party war liability prices droppedmaterially, and governments began to scale back their involvement.The briefing notes that “by the end of 2002, most governmentschemes had been withdrawn and replaced by commercial cover.”

The United States is now one of just eight governments stillproviding third-party liability coverage as of 2008. The othercountries are Canada, Brazil, China, Jordan, New Zealand, Qatar andSaudi Arabia, according to the briefing.

Legislative authority for this coverage in the U.S. is scheduledto continue until at least Aug 31, the briefing says.

Regarding the market for aviation insurance as a whole, GuyCarpenter found that capacity has grown and prices have droppedconsiderably.

“On primary liability covers, it is now possible to purchase$150 million aggregate cover for air carriers and serviceproviders, and on excess third-party liability covers, excess of $1billion aggregate cover is available,” the firm writes.

Insurers are still somewhat wary of an attack at an airport witha weapon of mass destruction that could “produce an accumulation oflosses that could ruin the market,” according to the brokerage'sanalysis.

“The aviation hull war market began to impose WMD exclusions onrenewals in May 2005, but the liability exclusions have yet to beused,” the firm related.

It said this delay is due in part to the terms of a settlementbetween the European Commission (EC) and London aviation insurersto conclude an EC investigation into the London aviation insurers'response to September 11, 2001.

The briefing opines that insurers will likely not change currentclauses this year because of the soft aviation market conditions.However, it adds that insurers may withdraw all WMD coverage ifanother major terrorist loss occurs.

Also discussed in the briefing are updates to various terrorisminsurance plans around the world, including some changes to terrorprograms in France and the Netherlands, and the extension of TRIAin the U.S.

Notably, Belgium has created a terrorism pool for the firsttime, called the Terrorism Reinsurance & Insurance Pool (TRIP).It will act as a reinsurance buyer, the briefing explains, and“guarantees the cover of terrorism claims during a calendar year upto a global annual limit of EUR1 billion ($1.6 billion).”