"Insurers Give Notice to Airlines That Rates Could Rise Rapidly"

Thursday, March 27, 2003

Insurers Give Notice to Airlines That Rates Could Rise Rapidly
By CHRISTOPHER OSTER
THE WALL STREET JOURNAL


Insurance companies, apparently trying to avoid the snarl of airline
war-coverage cancellations that threatened to cripple air travel following
the Sept. 11, 2001, terrorist attacks, are putting airlines on notice that
insurance terms and rates may change rapidly as conditions in the Middle
East merit.

While insurance companies raised war-risk rates for flights to Kuwait almost
immediately after the current Iraq war began, a rising number of insurers
have told their airline customers that coverage for an increasing number of
countries in the area is subject to almost immediate change.

German insurer Allianz AG told insurance brokers this week that it was
prepared to keep its coverage in place for flights to Iraq, but with
conditions. One condition was having the airlines give prior notice of any
flight to Iraq, Kuwait, Saudi Arabia, parts of Turkey, Iran, Israel and
Lebanon. The other condition was that the airlines would agree to pay
additional premiums on those flights, if requested by Allianz. Steven
Schleisman, chief executive of Allianz Global Risk, said the insurer was
simply trying to help its airline clients in difficult circumstances.

Other insurers have issued similar notices, even though for the time being
flights to Kuwait are the only ones seeing premium increases -- which
brokers said in some cases have been equal to $100 (€93.85) per passenger in
additional premiums.

Prior to Sept. 11, airline policies carried war-risk and terrorism coverage
that was provided essentially free of charge. Insurers could cancel the
coverage with seven days' notice, a provision the insurers exercised almost
immediately after Sept. 11. After the cancellations, there was some question
as to who would provide the airlines with war and terrorism coverage, which
is required to fly into most airports . Within days, many governments around
the world stepped in to provide the coverage, and commercial insurance has
since become available again, though it remains expensive. U.S. airlines
continue to rely on coverage provided by the Federal Aviation
Administration.

However, many of the world's airlines, and many of those that operate in the
Middle East, still rely on commercial-insurance coverage and are now
required to inform the insurers when they fly into any location considered a
"hot spot." "The underwriters have learned from Sept. 11," said Robert Karl,
an aviation specialist at Chicago-based insurance broker Aon Corp.

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