- The Washington Times - Wednesday, March 6, 2002

Congress is working on an emergency proposal to extend the liability limit on war and terrorism insurance for airlines beyond the March 20 expiration date set after the September 11 attack.
Meanwhile, airlines are developing their own insurance fund, accusing commercial insurers of abandoning them and trying to profit from terrorism.
"Very likely, there will be legislation that will extend it to some extent," said Steve Hansen, spokesman for the House Transportation and Infrastructure Committee. "The bill hasn't been finished yet. It has to be soon, so probably within the next week or so."
The decision on whether to extend war and terrorism insurance coverage for airlines rests with the U.S. Department of Transportation, which is considering a one-year extension. However, Congress must decide whether the liability of airlines will continue to be capped at $100 million, which is the limit Congress set in September.
The limit would apply only to third parties, which refers to anyone injured by a crash who is not on board the aircraft. Examples would include persons inside the World Trade Center or the Pentagon on September 11.
The legislation to extend the cap on insurance is being developed by Rep. Don Young, the Alaska Republican who is chairman of the committee, and Rep. John L. Mica, Florida Republican, who also sits on the committee.
The Transportation Department also controls administration of the government insurance program.
After September 11, insurance companies canceled their war and terrorism insurance for airlines. The federal government agreed to take over airline insurance until March 20.
Since then, about the only terrorism insurance available would come from the insurance holding company of American International Group at an industrywide cost of $1.4 billion per year, or $2.25 per passenger, according to airline-industry officials. Even insurance associations are urging Congress to come up with a better solution.
Last week, the Air Transport Association, which represents major airlines, began developing plans for a self-insurance fund for the airline industry.
The association acknowledges airline passengers might ultimately pay higher ticket fees to fund the program.
"Barring some unforeseen circumstance, I expect this to move forward," said Mike Wascom, ATA's vice president of communications.
The ATA has designated the insurance-services firm of Marsh & McLennan to administer the program, which would be chartered under Vermont law.
"The commercial market is no longer financially viable for the airlines," Mr. Wascom said. He accused insurance companies of trying to profit from panic caused by terrorism.
American International Group spokesman Joe Norton refused to comment on the ATA charges. However, the insurance holding company last month urged the Transportation Department to withdraw government insurance for airlines.
"We have no other alternative but to seek another financially viable option," Mr. Wascom said.
Before September 11, insurance companies often offered airlines war and terrorism insurance as a "throw-in" with other policies at no additional cost. Airlines that chose to buy it paid 2 to 3 cents per passenger, or $13 million industrywide.
On Sept. 17, insurance companies exercised their "seven-day notice of cancellation" option and ended the policies on Sept. 24. Congress stepped in to continue the insurance, which is required by the Transportation Department for common carriers.
"Knowing that the government rightfully did not want to remain as the direct insurer for the long term, the airlines began to search for other financially viable options," Mr. Wascom said.
A self-insurance fund, or "risk-retention group," would cost airlines about 70 cents per passenger, or $400 million per year industrywide, which is $1 billion less than the price asked by commercial insurers, according to the ATA.
Airline officials are uncertain whether passenger tickets will rise in price again because of terrorism.
"Hopefully not, but too early to tell," Mr. Wascom said. "It depends on the impact of these premiums on the individual carrier's cost structure. Some may opt to pass it on. Others may absorb it internally."
Government regulators already have been informed about the airlines' plans for self-insurance.
"The Air Transport Association and the department are in discussions about the war risk liability-insurance issues," said Fraser Jones, Federal Aviation Administration spokesman.
European airlines face a similar situation. Yesterday, they asked European governments to extend war and terrorism insurance that expires at the end of this month.
However, European Union finance ministers reiterated their desire to get out of a business they were forced to take over in the aftermath of the September 11 attack.
German Finance Minister Hans Eichel left a door open for the airlines, saying the European Union would wait to see what the United States does for its carriers before making a decision.


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