AIG Asks FAA to End Provision of War-Risk Coverage to U.S. Airlines

February 27, 2002

AIG is putting pressure on the Federal Aviation Administration (FAA) to cease providing war-risk insurance to U.S. airlines with hopes of substituting FAA coverage with its own insurance program, as first reported in the Wall Street Journal.

It was further reported that some airlines had expressed concern that the program AIG has in mind would dramatically increase costs, as war-risk coverage was available at no cost to the airlines prior to Sept. 11.

Insurers feel that the government should step out of the insurance industry, at least in the aviation sector, according to Forbes.com.

In a letter sent to Transportation Secretary Norman Mineta, AIG Chairman Maurice Greenberg asked for the withdrawal of insurance, which was offered FAA after the Sept. 11 attacks to compensate for the removal of war and terrorism coverages by insurers.

The government coverage was due to expire Jan. 11, but was extended until March 20. It was further reported in Forbes.com that the AIG-commanded consortium would charge premiums of $1.85 per passenger for $950 million in excess of $50 million, compared to the FAA’s coverage that charges $7.50 per takeoff for $100 million in coverage, allowing the government to cover losses that exceed that amount.

According to a FAA spokesperson, the airlines are continuing to pursue other alternatives, including the formation of their own insurance program, which would initially be backed by the FAA.

Another possibility stands with the intervention of the United Nations, which is considering a proposal through their International Civil Aviation Organization that would offer $1.5 billion in war-risk insurance coverage (in excess of $50 million covered by primary insurers) at a cost of 50 cents per passenger.

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