EU, China Plan to End Airline Insurance Next Month

September 24, 2002

The European Union plans to to end the emergency coverage it has granted to the community’s airline’s for terrorist liability by the end of October, while China’s government announced that it would extend coverage for its carriers until October 24.

Following Sept. 11 European governments stepped in to make coverage available for acts related to terrorism, which were no longer covered by private insurers. The European Commission (EC) now feels that this government-backed coverage is no longer necessary, as private insurers have now indicated that they will offer coverage for terrorist acts. It’s also concerned that the stop-gap measures could become a permanent fixture, and would amount to prohibited subsidies to the EU’s airlines

The U.K. plans to end emergency coverage at the end of the month, but others, notably France, Spain and Italy, are still opposed to phasing out the coverage, even though they have admitted that the private sector now offers it. They’re concerned that the U.S. will continue to offer backup coverage, and that the U.S. airlines self-insurance program, recently launched with the formation of a risk retention group in Vermont, will put EU carriers at a cost disadvantage.

According to a report from Dow Jones Newswires the EC plans to meet this objection by proposing the creation of a similar European mutual fund. Under the plan, private insurance companies would cover the first $150 million in losses, and the mutual fund would cover liabilities up to $1.5 billion. Governments would then be free to offer guarantees against losses that exceeded that figure.

The Chinese government announced that it was extending its back up liability coverage for terrorist events to the country’s airlines for an additional month, until October 24. The coverage, which is similar to that provided to European and U.S. airlines, has been extended on a month by month basis since September of 2001.

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