Big Insurers Taking Flight From Airlines
The Age
Friday September 28, 2001
Airlines face becoming uninsurable as a result of the tragic events in the United States on September 11, according to a report from US insurance specialist Tillinghast-Towers Perrin.
Even before the terrorist attacks, few insurers operated in the unprofitable US aviation liability market, coverage was limited (to about $US1.5 billion ($A3.1billion) per occurrence) and was becoming inadequate given the increasing size of aircraft and the rising cost of coverage.
Airlines might need to band together to augment the cover commercial insurance companies were willing to offer if they were to resolve the capacity crisis, TTP said.
Insurers have already moved to exclude terrorism risk from aviation policies.
The difficulties airlines face are a measure of the profound change taking place in the US insurance market as a result of the attacks.
After the dust settles, insurance will be more expensive and certain risks harder to cover.
TTP estimates the insurance loss will amount to between $US30billion and $US58 billion, depending on the outcome of flow-on litigation.
``This tragedy has brought new meaning to `worst-case scenario' from an insurer's standpoint," said the TTP report. ``Prior to September 11, the focus was on a single peril: a workday earthquake occurring in a major California city, a category-five windstorm hitting metropolitan areas, or two large planes crashing in midair.
``The new `worst case' scenario involves a single event that affects numerous policy holders, as well as damage to the insurer's physical facilities and death or injury to its staff."
The group warns the insurance market to expect insolvencies.
``Not every insurer and reinsurer will be able to pay," the report said, adding that the greatest immediate challenge for insurance companies was to file third-quarter financial reports with the Securities and Exchange Commission by mid-November.
There are likely to be disputes between primary insurers and reinsurers over whether to treat the terrorist attacks as a single occurrence, since it directly affects the bottom-line involvement of each primary insurer in the losses and the reinsurers' obligation to pay.
There will be tension as well in the dynamics of the market, when primary insurers seek to increase their reinsurance cover and reinsurers seek to contract theirs.
Commercial property and aviation markets will be adversely affected, but issues will permeate all markets.
Injured workers and dependents will be covered by workers' compensation. Claims in the longer term will be from respiratory injuries and stress.
Respiratory illnesses, post-traumatic stress and other mental-related illnesses will also hit the health-insurance sector, but Tillinghast claims the impact will be limited.
Claiming for business interruption will be made challenging because the language does not exist to quantify office-related business loss of income.
The biggest unknown is in the area of third-party liability, for which TTP has estimated losses in the wide range of $US5 billion to $US20 billion.
BUSINESS 3: Ansett gives up leases.
© 2001 The Age
