Terrorism Not Impacting Airline Insurance Rates, Brokers Say

In other corners of the world, where governments were issuing coverage after the Sept. 11, 2001 terrorist jetliner attacks, they are now phasing out the program, forcing airlines to purchase the insurance in the private marketplace, brokers said.

Mr. Alexandris said the latest incident on Dec. 25, 2009 involving a Detroit-bound airliner that led to charges of attempted murder and trying to use a weapon of mass destruction aboard a plane against Nigerian citizen Umar Farouk Abdulmutallab, will probably have no impact on the war risk insurance market.

Even though recent figures show commercial flight losses at the lowest in decades, "underwriters will likely continue to seek increases," said Brian Glod, managing director and U.S. airline practice leader at the insurance brokerage firm Marsh, a subsidiary of New York-based Marsh & McLennan Companies. "To the extent that they get them remains to be seen."

"There is no question that [flying] is safer than it has ever been; air travel is safe and has been for a very, very long time," said Garrett Hanrahan, chief executive officer-North America for Willis' global aviation practice.

"Technology is better than it was 10 years ago to avoid crashes and all of that contributes to airliners not crashing," noted Aon's Mr. Alexandris.

However, the quantum amount of loss from airline accidents and damage has insurers seeking increases in premium as they deal with what has turned out to be a severe loss year in terms of insurance dollars.

A report from Aviation Safety Network (aviation-safety.net) last week said there were a total of 757 airline accident fatalities and one ground fatality in 2009, from a total of 30 fatal accidents.

The figures fall lower than the 10-year average of 802 fatalities, Aviation Safety said, and only 11 involved passenger flights, the lowest number in over 60 years. However, the number of accidents is on average, the report said.

It is the number of accidents, and the amount of loss they produce, that the brokers say is driving insurers to seek premium increases.

"While the sky is safer, the severity of loss can differ from these findings," observed Mr. Glod.

Mr. Alexandris noted that while the year was the safest on record, it does not correlate with the fact that 2009 was one of the worst on record in terms of loss dollars.

According to a report from Willis, by October insurance industry loss reserves for 2009 were placed at over $2 billion. The report notes aircraft damage from hailstorms and hard landings as reasons for loss. And a mid-December report said without additional losses the annual claims figure would approach $2.4 billion.

The brokers, however, differed over whether the airline insurance industry is in a "hard market" as Mr. Glod noted that while the industry is seeking increased premium, capacity remains ample.

Mr. Hanrahan said that while the market is hardening, it is not doing so at a fast rate. However, a series of significant losses could change all of that, he noted.

"What is keeping a check on the market is capacity," Mr. Hanrahan said. "It speaks to the fact that underwriters still believe they can make money in this business."