Insurance situation in the aviation industry
Airline companies’ hull and liability insurances are placed on the international market on account of their high sums insured, which in some cases can even exceed the billion franc mark. The risks are thus shared amongst a large number of primary insurers and reinsurers.
Zurich / 26 september 2001 – At first, it may be difficult to understand why an extremely short cancellation period of seven days is written into most contracts. The purpose of war and terrorist insurance is to cover losses such as those stemming from the terrorist attacks on 11 September in the United States. However, insurance companies find themselves forced to reassess the general risk situation if fundamental changes occur. Otherwise, there is a danger that, were the violent acts to continue, the agreed cover could no longer be guaranteed.
War risks are excluded from insurance policies worldwide, although in hull and liability business it is possible to include them in special covers with set terms and conditions. The unusual risk structure of these policies (war events) makes them different to other insurance covers, one of these differences being the right of cancellation should such an event occur. The cancellation period is seven days. The aim of this mechanism is to give both parties the opportunity, depending on the risk situation, to:
- adapt the price to the changed risk situation either in general or for flights to particular regions;
- reduce the scope of cover to a manageable size either in general or for specific areas;
- cancel cover totally either in general or for specific regions.
In this particular case, the sum insured for third party liability losses resulting from terrorist attacks has been limited worldwide to USD 50 million. Intensive efforts are currently being undertaken in the market to make more insurance capacity available for the airline companies. The airlines’ insurance cover for other risks continues to be guaranteed in full.
War covers for airports and other business liability programmes have also been cancelled, although the international market is not yet able to offer a solution. The insurers who participate in the Swiss Aviation Pool will, however, provide an interim solution if necessary.
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