New insurer to cover terrorism is proposed

By John Hughes
Bloomberg News Service

WASHINGTON — AMR Corp.'s American Airlines Inc., UAL Corp.'s United Airlines and other U.S. carriers propose creating a company to provide terrorism insurance at half the cost of current coverage.

Marsh Inc., the insurance brokerage unit of Marsh & McLennan Cos., applied for a license to operate an insurer called Equitime, said the Air Transport Association representing airlines that carry 95 percent of U.S. passengers and cargo.

The filing was made to the Vermont Department of Banking, Insurance, Securities and Health Care Administration, the ATA said.

"Until the marketplace returns to normalcy, the U.S. airline industry must explore other alternatives," ATA President Carol Hallett said in a statement.

The airlines would provide about $300 million in startup financing and first-year premiums to the company for coverage that would cost about 50 cents to 70 cents a passenger, lower than the $1.33 they pay now. Commercial insurers limited war-risk coverage for airlines and increased premiums after the Sept. 11 attacks, forcing carriers to seek alternatives and more financing for insurance.

The U.S. government has stepped in to provide coverage through June 19 for damages of more than $100 million that might result from acts of terrorism.

The program would offer liability coverage of as much as $1.5 billion for each event, and airlines would decide individually whether to purchase insurance through the plan.