U.S. Airlines Left Hanging Over Terrorism Coverage

The staffer cited the recent arrests in the United Kingdom of terrorists who were taken into custody for allegedly planning to bomb U.S. planes traveling from the U.K. to the United States.

Terrorism risk for domestic carriers was added to an existing War Risk Insurance Program sometime after 9/11 by Congress after airlines complained that terrorism risk coverage was withdrawn by the private sector.

Such insurance has not been available at reasonable rates since 9/11, said Sharon Pinkerton, vice president for government affairs at the Airline Transport Association in Washington, which strongly supports the program.

Officials of several carriers involved in airline insurance risk pools were in meetings or traveling and unavailable for comment. However, one airline insurance broker, speaking on condition of anonymity on this sensitive topic, confirmed that commercial terrorism insurance for domestic aviation is simply unavailable, warning that "without this government program, the airlines would be in a world of hurt."

An additional issue is that no insurance is available at any price to cover potential nuclear, chemical, biological and radiological risk, Ms. Pinkerton said.

The insurance industry has been making the same contention on NCBR risk to the U.S. government in its efforts to get TRIA extended permanently in some fashion. Currently, TRIA's federal reinsurance program expires Dec. 31, 2007.

The first inkling of the administration's receptiveness to renewal beyond 2007 will be gauged by a report from the President's Working Group on Financial Markets that is due out by Sept. 30. The group was asked to study the affordability and availability of terrorism insurance in the primary and reinsurance markets.

The airline program was formerly confined to international carriers going into war zones. It has been in place since the 1950s, according to a DOT representative. But Congress added domestic flights to it soon after Sept. 11, Ms. Pinkerton noted.

The program has many supporters in Congress. A congressional staffer who declined to be named said the uncertainty surrounding the airline terrorism risk insurance program at the moment has more to do with government accounting principles than substance, she said.

Coverage for domestic flights was recently renewed until Dec. 31 by the acting U.S. Secretary of Transportation, and will likely be extended for up to another year through the appropriations process when Congress returns for an expected lame duck session in mid-November.

Authority for the Secretary of Transportation to renew the program until Dec. 31, 2007 is contained in the Department of Transportation-Treasury-Housing 2006 appropriations bill, according to congressional staffers. The provision was contained in the appropriations bill that passed the House and was reported out by the Senate Appropriations Committee, these staffers said.

But it is unlikely to be taken up until Congress returns for a post-election session–probably the week of Nov. 13. The reason is that few appropriations bills have been acted on by Congress so far this year, leaving little time in the current abbreviated session for Congress to finish work on the DOT-Treasury-Housing appropriations bill.

There are two bills for longer-term renewal pending in Congress. One is a bill sponsored by Sen. John Rockefeller, D-W.Va., to extend the program until Dec. 31, 2008. Another bill by Rep. John Mica, R-Fla., H.R. 51987, would extend the program until Dec. 31, 2011.

The problem with long-term extensions is that they are scored as a hit to government revenues by the Congressional Budget Office, while a one-year extension is scored as a revenue-raiser. The reason is that CBO views private money into a government program in the first year as a positive, because the costs of such a program to the government are not likely to surface until subsequent years, a staffer explained.