Brokers back deal, but companies still want state support

UK airlines are planning to group together to buy collective cover in what could be the biggest insurance deal ever, worth £5bn.

It is understood that the world's biggest brokers, Aon, Marsh and Willis, would work together to help arrange cover through a pool arrangement when the current temporary government-backed scheme expires in March.

A senior source said the scheme, covering all UK airlines, would be copied in other countries as part of an international attempt to solve the current worldwide crisis in aviation insurance.

The pool, administered collectively by insurers, would solve the current critical lack of aviation cover by establishing an international network of underwriting pools.

A top broking source said: "The pool would be administered by insurers, but at the moment insurers say they want it to be underwritten by governments.

"They think the risks are too great for the commercial market to bear."

He said leading brokerages would be prepared to co-operate on the deal.

Government-backed schemes in the UK, Europe, US and Japan are due to end in March. They were introduced when insurers withdrew most of their cover following the 11 September attacks.

Airlines faced having their fleets grounded unless they could find cover.

Even before 11 September, airline premiums were thought to be worth more than £1bn a year to insurers.

Industry figures have estimated the UK market could be worth more than £5bn after the price rises.

Despite the sums involved, insurers have been slow to return to the marketplace, leading to accusations that the industry had operated a cartel.

One UK airline source said: "It's obvious the insurance companies all acted in tandem when they pulled their cover.

"All the airlines got pretty much the same letter on the same day. We think it's against European policy and British law." Insurers deny this claim.

Treasury sources said government intervention had hindered insurers' return to the marketplace.

"The insurers that are coming back to the market are demanding very high premiums. By the end of February there will be a lot of customers providing a lot of demand. There should be plenty of competition."

The international pool plan's success will depend on how many airlines sign up. Flag carriers are considered particularly important.

Market sources indicated ten of the 12 UK-based airlines are investigating the idea.

All currently buy insurance through the temporary government-backed scheme.

It will also depend on insurers' willingness to re-enter the market.

The plan is expected to be discussed next month at a ministerial conference organised by the International Civil Aviation Organisation (ICAO) in Montreal, Canada.