Insurers ponder covering aviation war risk insurance again
Moves are afoot to bring aviation war risk insurance in the US back into the private market. War risks have been covered by the US federal government since private coverage was cancelled in the wake of the September 11, 2001, terrorist attacks.
President Barack Obama has already raised the prospect of this in statements made around his proposed budget for 2014, but a meeting has also taken place between airlines and insurers on how such an arrangement could work, according to one source.
Intelligent Insurer understands that representatives from the Federal Aviation Authority and Airlines for America, a trade association, met with insurers recently to discuss a potential co-insurance solution which could kick in for 2015. This would mean the existing arrangement would be extended through 2014.
In the President's Budget for the FAA in FY2014, $58 million was appropriated to the aviation war risk insurance programme. In that submission, it was suggested that a co-insurance arrangement could be created between the Department of Transport (DOT) and insurers in which the liability taken by the private market would grow over time.
“With the goal of building private capacity to manage aviation war risk, the Administration proposes to transform the programme into a co-insurance arrangement in which DOT and a private insurer would jointly underwrite a common policy.
“In the case of a claim, DOT would pay an established fraction of the losses, and the private partner would pay the remainder. The Federal share would be slightly reduced each year as private capacity expands. The proposal would extend the existing programme through 2014, during which time DOT would propose changes to its underlying statutory authority and work with the private insurance industry to develop co-insurance policies.
“The Budget proposes that a co-insurance arrangement would begin to reduce the government’s share of any losses, starting in 2015."
Aviation war risk insurance is just one of a number of risks currently covered by the US government which could move back into the private sector. The Terrorism Risk Insurance Act also expires in 2014 and its future is being debated while solutions are also being discussed that could bring flood risk managed by the National Flood Insurance Program back into the private market.
