Insurance companies propose alternatives for airline war risk

New Delhi, Oct 3: PSU insurers have proposed an alternate mode of extending fresh insurance cover for war risks to airline companies, which is expected to be considered in the next meeting on October 5 in Mumbai.

The meeting of four PSU general insurers, ministry of finance and civil aviation, ended inclusive here on Wednesday, but officials are hopeful that an agreement would be evolved at the next meeting in Mumbai. “We have not reached any conclusion. We had exchanged views with the civil aviation ministry and the industry regarding the contraction of the insurance industry world-over,” New India Assurance chairman KN Bhandari told reporters without divulging details. The airline companies and insurers could not agree on the insurance cover for new war risk cover as insurers were reluctant to offer any further cover beyond the third-party liability limits.

Currently, the third-party liability limit offered by insurers to Air-India (A-I) is about $1.5 billion while it is $500 million for Indian Airlines (IA), $300 million for Jet Airways and $150 million for Sahara Air. “Airlines can go for insurance cover for new areas but the prices are exorbitant in the international market.

We are trying to find out what are the alternate solutions,” an insurance company official said. The insurance cover for war emanted after the September 11 terrorist attacks in US, which is expected to increase Air-India’s insurance premia by about Rs 10 crore after reinsurance charges shot up in international markets.

One of the proposals which the insurance companies are considering was to form a catastrophe fund through which companies could be funded during emergency situations. The insurers have prepared a concept paper which is being considered. Another alternate approach was to make an arrangement on a “delayering basis” about how to provide insurance cover and the ways it can be done.
Sources said there were three ways the additional premia could be collected — surcharge on airlines or the passengers or on a proportion of the revenue of airline companies.

The issue of extending letter of comfort that civil aviation ministry had sought from the finance ministry would also be decided among the two ministries, official sources said without giving details and a time frame. PSU insurers likely to finalise package for Airline companies soon. Civil aviation ministry had asked finance ministry to provide a letter of comfort for lessors of aircraft to Air-India and Indian Airlines for third-party war risk cover, after A-I grounded two leased Airbus A310s and was likely to ground one more shortly.

— PTI