London Market Calm On Aviation Cover

"There is not a lot happening from the insurers point of view," observed Rod Dampier, chairman of Lloyd's Aviation Underwriter's Association in London.

Insurers and the world's airlines have had more than a month to plan for what they will do during this war, he said, and the insurers have put "the onus" on carriers to either not fly or to reroute planes away from the area hostilities.

Officials from the International Air Transport Association, headquartered in Montreal, met with Lloyd's officials to discuss how insurers and airlines will work together through the war.

Airlines have either suspended operations or are now rerouting planes around Iraq.

"Any carrier worth their salt will not be flying through that area," Mr. Dampier said. "They do not need to be told not to do it."

Should an airline carrier need to fly through an area of hostilities, he noted, they would consult with the insurer first to determine the extent of their coverage, if any.

Insurers, he added, are treating current events as a regional conflict. However, if events expand worldwide or there is terrorist activity, then insurers may need to "apply a broad brush" to policies. He would not identify what those events could be.

"We obviously are looking to protect our own interests and shareholders, but we do not want to overreact," Mr. Dampier said.

Johnathan Palmer-Brown, chairman of specialty coverage for Aon Corp. in London, said that since the terror attack of 9/11, insurers have raised premiums to account for the increased concerns for terrorist attacks and the cost of recovery following the terror attack losses.

Insurers and clients continue to gather information, he said, and keep a careful eye on events as they unfold.

If there is one concern for the world market, it relates to the amount of capital available within this market, Mr. Palmer-Brown observed. If there are significant losses in any field of the property-casualty business, it could have a ripple effect on aviation insurance.

"Losses create change," he said.

Also, a significant amount of capital was "taken out of the pot" among aviation insurers when the United States government assumed coverage for U.S. airlines under the Homeland Security Act.

"It's not to say that what the U.S. government did was wrong, it's just a fact," added Mr. Palmer-Brown.

As far as pricing is concerned, Mr. Dampier said that renewals for the industry usually take place in the latter part of the year–October through December–and airlines should not see any immediate effect during this period.

In a statement, Hardy Underwriting Group, a Lloyd's syndicate, said they believe the impact on the aviation market would be generally limited.

Any changes made for policies, the company said, would depend on "length and severity of any hostilities."

However, the syndicate warned "a protracted conflict" could reduce passenger numbers and subsequently bankrupt some carriers, producing bad debts and slowing premium payments in the aviation market.

Of greater concern, Hardy noted, is terrorism, which could bring "considerable change within the market," especially related to war risk.

Late yesterday, Reuters reported that New York City-based insurer American International Group is planning to increase premiums for specific routes through the Middle East when flights resume. AIG did not immediately respond to a request for comment.