European Insurers Consider Certain Terrorist Risk Exclusions for Airlines

August 26, 2004

Europe’s leading insurers are reportedly considering several clauses in airline insurance contracts that would exclude coverage for attacks involving chemical, biological and nuclear materials.

The effort, headed by Lloyd’s underwriters, has already been drafted. The BBC reported that a Lloyd’s spokesman had indicated that drafts had been sent to “all relevant parties.” He also noted that using the exclusionary language was optional.

However, it’s become apparent to many in the industry that a terrorist attack employing such means of mass destruction, could cause such widespread damage as to be beyond the industry’s coverage capacity. The risks involved are almost impossible to quantify or assess, and most airline insurers are expected to begin using the new exclusionary language in january 2005.

The U.S. government will continue to assume U.S. airlines’ terrorist risks until 2008, but European airlines have had to increasingly rely on the private sector for such coverage. The imminent adoption of the exclusion clause has therefore raised questions about the role of the European Union and individual countries in protecting Europe’s airlines.

The International Air Transport Association (IATA) has strongly urged governments to take on the responsibility. A report from Reuters quoted an IATA spokesmen as indicating: “Terrorism is a question of security and for us it’s a question of national security, not aviation security. Governments should be taking on the cost burden of these activities.” Whether they will, or not, and under what terms and conditions, remains an open, but nonetheless pressing, question.

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