Insurers must pay back premiums as US airlines opt for government cover

Aviation insurers are facing a double whammy that could cost them at least $265m (£168m).

They are being asked to repay up to $125m (£80m) to US airlines and are also facing a shrinking market for hull war cover.

The airlines' demands are the knock-on effect of the US government's decision to offer cheap war risk cover to its airlines.

Its price is about a tenth of that available commercially.

US airlines have rushed to cancel their commercial third party liability cover, demanding the return of their premiums and the rest are expected to follow imminently.

In total, insurers are expected to have to give back between $100m (£63m) and $125m (£79.2m) for third party war liability business alone.

US airlines are also cancelling their commercially bought hull war cover, leading to rapidly falling demand.

If all US airlines pull out of the market, the aviation market would lose at least $140m (£89m), it is estimated.

One industry source said: "If the global hull war market loses $140m of premium income, the impact will be even worse than the cancellation of the third party liability cover."

In a separate development, support for a proposed global aviation war risk insurance scheme has risen to 43%, with 51% needed for start-up.

The scheme, called Globaltime, was proposed by the International Civil Aviation Organisation (ICAO), which is negotiating with key states whose backing is needed.

Insurance Times reported last month how London Market brokers were calling for modifications to the Globaltime scheme to make world governments share the cost of insuring airlines against terrorism.

Ken Coombes, chairman of the LMBC's technical committee on aviation and a senior vice president at global broker Marsh, said the changes aimed to prevent US airlines gaining a significant competitive advantage.

ICAO is expected to announce soon how it will formally consider the proposals.