Airlines Want State to Shoulder Terrorism Insurance

Just as the aviation industry begins to recover from the effects of terrorism, SARS and a sluggish world economy over the past few years, airlines are bracing for yet another blow. Major European reinsurance companies apparently want to drop certain terrorism-related risks from aviation policies.

German daily Financial Times Deutschland reported on Wednesday that several European reinsurers starting 2005 want to explicitly rule out liability in the event of attacks with nuclear, chemical and biological weapons. They include attacks with so-called "dirty bombs" containing radioactive or other hazardous materials being detonated aboard planes or at airports.

"Incalculable costs"

The paper said that the magnitude of claims that could result from such an attack are simply too immense for the insurance industry.

"We don't want to insure such risks any more, they're simply incalculable," a spokeswoman for Münchener Rück, the world's largest reinsurance company told news agency AP.

German insurance, banking and asset management giant Allianz said it had no definite commitment to cover terrorism risks in the future.

The report also said that aviation underwriters in London, which lead the insurance of most of the world's major airlines, had already drafted a new clause earlier this year that excludes such terror risks from their standard policies, but allowed them to be written back for an extra premium.

Lufthansa wants governments to step in

The news has rattled major European airliners, who are obliged by law and international agreements to provide insurance cover for passengers and may not fly without insurance.

German national carrier Lufthansa and other European airliners are now pushing for EU governments to take over liability for damages resulting from terrorism and indemnify their airlines against such an attack.

Lufthansa's insurance head Ralf Oelssner painted a drastic scenario, saying that the reinsurance industry's move could mean that airliners would have to ground their fleets if governments didn't step in to provide cover for ininsurable aviation risks. "Without a state guarantee, there is a possibility that air traffic will have to be discontinued if the insurers cancel their terrorism cover, as announced," Oelssner told Financial Times Deutschland.

Lufthansa has since played down fears it would have to stop its flights. "Practically, it's rather absurd. The airplanes won't stay on the ground," Thomas Ellerbeck spokesman for Lufthansa told Reuters, adding the airline was confident a workable agreement could be found in talks with governments, insurers and the European Union.

"If there is no private-sector solution for European airlines, it will have to come down to a state guarantee for this particular risk," Ellerbeck said. "This is also about fair competition across the north Atlantic." In the US, the government already provides terrorism insurance and will do so until 2008.

"Terrorism is a question of security and for us it's a question of national security, not aviation security," a spokeswoman for the International Air Transport Association (IATA), a Geneva-based airlines trade association representing over 98 percent of scheduled international traffic, told Reuters. "Governments should be taking on the cost burden of these activities… it's a matter of protecting their citizens," she said.

European governments did temporarily take over terrorism insurance in the aftermath of the Sept. 11, 2001 terror attacks in the US at a time when several insurers cancelled their policies overnight for fear of being forced to pay huge claims.