If You Want Something Done Right Do It Yourself – Airlines Plan Own Insurance By Michelle Logsdon - March 15, 2002U.S. airlines are now the redheaded stepchildren of the country’s economy and they have been forced to step out on their own to protect themselves.
After the Sept. 11 terrorist attacks, commercial insurers basically abandoned the airlines by leaving the market, raising premiums or cutting the amount of coverage they would offer. In response, the airlines are forming their own federally backed insurance company.
The Air Transport Assn. and the Department of Transportation are organizing the new insurance company, Equitime, with the help of broker Marsh & McLennan Cos. Inc.
Equitime, will provide the airlines with liability coverage of $1.5 billion per incident. Policyholders will pay 50 cents to 70 cents per passenger—almost half of what they pay now which is $1.33 per passenger.
Shortly after the attacks, the government came to the rescue of the airlines by creating a six-month emergency policy covering the airlines for third party, war risk liabilities in excess of $50 million. That policy was scheduled to expire March 20. The Bush administration decided March 15 to extend the coverage two more months to May 20.
The extension was in response to the fact that private insurers did not step back up to the plate to bat for the airlines despite the passage of time or the possibility of government reinsurance. Only a handful of companies have taken on any airline liability—and it comes at a high cost. Among those providing policies are American International Group Inc. (AIG), and Berkshire Hathaway Inc.
“Pre 9/11, U.S. airlines were paying a combined $15 million to $20 million for war risk coverage, and today we’re paying a combined $930 million,” Chris Duncan, risk manager at Delta Air Lines Inc. told the Los Angeles Times. “That’s not insurance.”
Scott Russell, a managing director of Marsh’s Minneapolis office, told A.M. Best that 60 days may not be enough time to finish developing Equitime. “That would probably be cutting it a little close.”
British airlines are facing the same dilemma as their U.S. counterparts. A similar government protection plan in place in Britain was extended until the end of March. European airlines are also considering a do-it-yourself insurance policy because of the exorbitant prices of the private industry. |