New capacity can replace government schemes, say underwriters

The government can stop underwriting airline risks and let the commercial insurance market take over, according to senior underwriters.

In the wake of the World Trade Centre tragedy, commercial insurers would not cover airline risks. This forced national governments to become insurers of last resort. The UK government, aided by Aon, Willis and Marsh, set up the Troika scheme in the UK.

The scheme was intended to expire on 22 January but was extended to 20 March and then 31 March. This was because the commercial market would not offer any reasonably priced cover.

As Insurance Times went to press, the European Commission was set to allow the 15 EU governments to extend their provision of aviation cover. It is understood the new deal will run until 19 May.

The Association of Insurance and Risk Managers chief executive David Gamble said: "We would certainly hope they would do so. It would give us equality with the other European airlines."

But a senior insurance aviation expert said the government may choose to withdraw its support.

"The likelihood is it will end the scheme at the end of the month," he said. "Commercial insurance is available which is not that much more expensive than the government's scheme."

He added prices had been coming down in the last few months and an influx of new capital since 11 September meant insurers and reinsurers were more willing to cover larger risks.

Axis Specialty chief finance officer Andrew Cook said: "We will consider terrorism risks on an individual basis."

Gamble added he hoped the government would provide 60 days' extra cover to allow European countries time to create a mutual scheme.

A Treasury spokesman said: "We have always said this has been a temporary measure. The question is timing."