EU Airlines Back Government Supported Terrorist Coverage Plan

June 14, 2002

As a crucial meeting of the European Union’s Transport Ministers approaches, the EU’s airlines have increasingly lined-up behind a plan which would establish a mutual insurance fund, backed by EU governments, to cover claims related to terrorism.

The meeting, scheduled for Monday in Brussels, will hear arguments from airline representatives that insurers have for all practical purposes withdrawn from the market by so limiting the coverage they do offer that it is in effective, or by making it so expensive that they can’t afford it.

So far EU governments have been providing the airlines with emergency terrorist cover, while waiting for an overall solution to emerge, but that’s scheduled to cease at the end of the month.

Meanwhile several of the world’s biggest insurers have come forward with plans to offer third party airline coverage, including Swiss Re and Germany ‘s Allianz. One proposal made by Allianz in April in association with 11 other insurers, including Berkshire Hathaway, specified that it would offer “a policy providing coverage of up to one billion US-dollars per aircraft and a maximum of up to two billion dollars per airline per annum.”

The policies, which would be part of a master scheme “encompassing all relevant airline policyholders” cannot be canceled at Allianz’ discretion, but would automatically terminate “after four major events resulting in losses under the master scheme.”

Many European airlines have indicated that they don’t think the policy or the terms are adequate, and have backed the mutual insurance scheme named “Eurotime” as an alternative. The German government is working on its own mutual scheme, called “Equitime,” and proponents of an EU-wide solution are hoping to convince Germany to back their plan. The U.K. and France have already announced that they would support such a system, and if the Germans can be convinced, it would probably be adopted in one form or anther.

If it is, the EU must also agree to extend further emergency coverage while the mutual fund builds up sufficient reserves to cover claims. It would probably also have to pass legislation, similar to that proposed in the U.S., that EU governments become reinsurers of last resort for airline losses related to terrorist activities.

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