WASHINGTON--Federal officials said the program providing terrorism insurance coverage to domestic airlines has been extended by administrative action for the first eight months of this year.
Henry Price, a spokesperson for the Federal Aviation Administration, confirmed that late last month the Aviation War Risk Insurance Program was extended through Aug. 31. It had been due to expire Dec.31, 2006.
The extension by administrative action was permitted under the legislation which expanded the war risk program protecting domestic flights from uninsurable risks.
Terrorism risk was added to the program's jurisdiction in the wake of the Sept. 11, 2001 terrorist attacks, and the program has been periodically renewed since then. For U.S. flagged carriers, the program provides war risk hull loss and passenger, crew and third-party liability insurance.
The extension came in the wake of the continuing resolution for appropriations that was passed by Congress and approved by President Bush last month, and according to the FAA also in anticipation of the expected passage of appropriation legislation by the new Congress or another continuing resolution.
The program acts much in the same way as the Terrorism Risk Insurance Act, and is viewed similarly by the Bush administration, which has stated its desire to see terrorism risk solutions developed by the private market.
However, Wayne Wignes, president of the Aviation Group at AON brokerage, said the expectation that a private market solution will appear may be unrealistic.
U.S. flag airlines are currently obtaining their coverage through the war risk program. There are, he noted, insurers willing to write the coverage, but only at very high rates. "The insurers see this as an area for profit taking," he said.
While, as elsewhere, rates for terrorism coverage are improving somewhat, he noted that affordability is not the issue. "No matter what the price, the market disappears after the first significant loss event," he said, adding that the private market simply lacks the capacity to cover terrorism risk for airlines and that expecting the private sector to establish its own mechanism is a "flawed solution."
As a result, Mr. Wignes said that airlines are "lobbying anyone who will listen," to ensure that the war risk program is continued.
Mr. Wignes said that the similarities facing the airlines and other businesses exposed to terrorism risk have not gone unnoticed, but the differences between the two politically make for very different situations.
Despite what he called a "yeoman's effort" by the FAA, Mr. Wignes explained that the war risk program "has been solved in very small bites," through a series of short-term extensions.
Although the shorter extensions have made for more paperwork, Mr. Wignes said that it is preferable to the alternative, which would be no program at all. "It's annoying to do it in small bites, but it is the politically practical thing to do."
There are, however, limits on how long the program can last. The current extension runs through August, and Mr. Wignes said another could be enacted that would run the program to the end of the year. Under the current legislation allowing for terrorism under the war risk program, though, that could only be followed by a short, final extension to keep the program going into the spring of 2008.
The future beyond then is a "great concern" for airlines and their brokers, Mr. Wignes said, and also "one of the reasons there's a very active [ongoing] lobbying effort."
"Terrorism against an airline is an attack against our country," he said. "They're not attacking one corporation or another; they're attacking the United States."
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