Insurers Not Pulling Airline Cover

Insurers Not Pulling Airline Cover

By Mark E. Ruquet

As war strikes, insurers are not contemplating pulling existing aviation coverage from domestic commercial, private, or corporate airlines and aircraft, and the airline industry is showing no concern that insurers will do so for now.

“We have not heard, nor do we expect to hear, that the insurance industry is canceling coverage,” Wanda Warner, spokesperson for the International Air Transport Association from her office in Washington, D.C., said shortly before the start of hostilities.

Insurance brokers specializing in the aviation industry also say that the insurers they have spoken to are not planning to cancel aviation coverage.

“There has been nothing from the [insurance] carriers, so far,” said Rick Weinkauf, vice president and director of aviation for Daytona Beach, Fla.-based insurance broker Brown & Brown. “No one is invoking a notice to cancel coverage.”

Insurance “carriers are taking a wait and see attitude,” said Dean Anderson, director of aviation for Chicago-based insurance broker Acordia, a subsidiary of Wells Fargo Company. “They are not jumping to conclusions.”

John McCaffrey, corporate vice president and head of the aviation niche for Arthur J. Gallagher in Itasca, Ill., said that since the 9/11 terror attacks, both customers and carriers have carefully reviewed their policies to make sure their risks are positioned in a way both parties are comfortable with.

“There is no scramble here,” he noted. “No one is saying, I wish I thought of that. There is no knee jerk reaction to this,” he said, referring to the war in Iraq.

The brokers say that aviation interests including small commercial airlines and corporate and private aircraft have purchased war risk cover for their craft. Insurers can cancel the coverage with notice. The length of time can vary depending on the policy agreement and range from 48 hours to 30 days. Generally, the notice time is seven days. And the criteria for that notice is spelled out clearly–it needs to be a declared conflict between sovereign nations.

Immediate termination is available under conditions of the detonation of a nuclear device, they said.

If notice is given, insurance purchases would then be subject to market conditions and would probably be available at a substantial percentage of the worth of the hull and liability coverage being purchased. One broker said that premiums are usually run about 15 percent the worth of the hull and 20 percent of the liability being purchased in war time.

When asked about the immediate cancellation of aviation insurance for five helicopters used by the United Nations Monitor, Verification and Inspections Commission in Iraq earlier this week, the brokers speculated that the contractors must have used contract language to cancel the policy not used in the standard forms.

For the United States commercial air carriers, there is not concern for coverage cancellation, said Joyce Howard, managing director of aviation practice for Chicago-based Aon Corp. The broker represents seven of the nations 10 largest air carriers, she said.

These carriers come under the insurance coverage of the Homeland Security Act, which provides coverage for the countrys carriers who have entered the program or are a part of the Civil Reserve Aircraft Fleet. Under CRAFT, the commercial carriers provide planes to the government for transport.

Coverage, she said, is comparable to traditional carriers coverage, and slightly less expensive.

At a disadvantage, she noted, are foreign carriers who are dependent on the traditional market, largely written by Lloyds of London syndicates. Here, they are subject to war-risk buy back, cancellations, and denial of coverage on 24-hour notice for air routes deemed to be too dangerous.

She added that the insurers have “informally” polled their non-U.S. aviation clients on the extent of their exposures in the middle East, and as a result the insurers know who has routes in harms way. In those cases, the air carriers may see notice affecting certain routes.

“At this point, everyone is pretty well positioned to react,” said Ms. Howard. “Now it is question of what will be.”

Reproduced from National Underwriter Edition, March 24, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.