Airlines consider insuring each other against war

Airlines can slash sky-high insurance costs back to pre-September 11th levels if they insure each other against the risk of war, a plan that could start by the end of 2002, the International Air Transport Association (IATA) said yesterday.

A global, airline-paid, airline-managed fund would cut insurance costs from an estimated $6 billion (€6.4 billion) this year back to near the annual $1.7 billion it was before September 11th, said Mr Giovanni Bisignani, incoming director of the association.

Insurance could go from being an airline's prime pre-occupation - as it is now - to being the focus of the dusty corner office as it was in the days before hijackers used planes as weapons against US targets, he said.

"When I was there in Alitalia, insurance was a small department that nobody cared about because everything it did was very routine," Mr Bisignani, a former chief executive of Italy's flag carrier, said.

Following September 11th, the airline industry faced a rocketing bill as insurers re-evaluated what constituted the risk of war. In some cases, governments had to offer to pay if an airline encountered an act of war or terrorism because insurers considered that risk so unpalatable.

IATA, which embraces all but a handful of the world's carriers, suggested shortly after the September 11th attacks that airlines put money into a mutual fund and insure each other against war risk instead. Governments would provide an ultimate guarantee that would only be called in if damages were more than $1.5 billion.

The proposal goes to a vote from members of the inter-governmental International Civil Aviation Organisation before a July 21st deadline and could be in place by the end of the year if it passes, Mr Bisignani said.

Governments are expected to back it because it takes some of the pressure off them to pay up if an attack similar to September 11th took place. And the airlines would see the obvious benefit of lower insurance costs, a factor that could nudge them back toward profit after a disastrous year last year.

Insurance companies were initially opposed to the project but have since come around.

"They felt that it was a market for them, but since they didn't want to assume the risk, they have become reasonable," he said.

Europe and the United States have proposed similar regional funds with the European one ready to go, but IATA hopes a global solution will eventually take over. - (Reuters)