Private insurers are increasingly willing to write aviation insurance for terrorism, and the United States is among a small handful of governments still providing coverage for the risk, according to a new Guy Carpenter briefing.

According to the briefing, titled “2008 Global Terror Update,” governments stepped in to provide this coverage after September 11, 2001, when aviation insurers withdrew coverage for acts of war, terrorism and related perils.

The briefing notes that because airlines are required to carry third-party liability insurance in order to receive landing rights and as a condition for leases, the cancellation of aviation insurance could have threatened the aviation business as a whole.

“Within days of the [September 11] events, all aviation insurers issued a seven-day notice of cancellation to reduce third-party war risk liability insurance for air carriers and aircraft operators to a maximum of $50 million aggregate cover, down from as much as $2 billion for any one occurrence,” according to the briefing.

Guy Carpenter noted, “Airports and service providers were not offered third-party cover until weeks later, although even then the majority of insurers declined to write security service provider risks.”

However, with no further losses in the months after September 11, the briefing says third-party war liability prices dropped materially, and governments began to scale back their involvement. The briefing notes that “by the end of 2002, most government schemes had been withdrawn and replaced by commercial cover.”

The United States is now one of just eight governments still providing third-party liability coverage as of 2008. The other countries are Canada, Brazil, China, Jordan, New Zealand, Qatar and Saudi Arabia, according to the briefing.

Legislative authority for this coverage in the U.S. is scheduled to continue until at least Aug 31, the briefing says.

Regarding the market for aviation insurance as a whole, Guy Carpenter found that capacity has grown and prices have dropped considerably.

“On primary liability covers, it is now possible to purchase $150 million aggregate cover for air carriers and service providers, and on excess third-party liability covers, excess of $1 billion aggregate cover is available,” the firm writes.

Insurers are still somewhat wary of an attack at an airport with a weapon of mass destruction that could “produce an accumulation of losses that could ruin the market,” according to the brokerage's analysis.

“The aviation hull war market began to impose WMD exclusions on renewals in May 2005, but the liability exclusions have yet to be used,” the firm related.

It said this delay is due in part to the terms of a settlement between the European Commission (EC) and London aviation insurers to conclude an EC investigation into the London aviation insurers' response to September 11, 2001.

The briefing opines that insurers will likely not change current clauses this year because of the soft aviation market conditions. However, it adds that insurers may withdraw all WMD coverage if another major terrorist loss occurs.

Also discussed in the briefing are updates to various terrorism insurance plans around the world, including some changes to terror programs in France and the Netherlands, and the extension of TRIA in the U.S.

Notably, Belgium has created a terrorism pool for the first time, called the Terrorism Reinsurance & Insurance Pool (TRIP). It will act as a reinsurance buyer, the briefing explains, and “guarantees the cover of terrorism claims during a calendar year up to a global annual limit of EUR1 billion ($1.6 billion).”