Airlines applaud insurance plan

Taiwan airlines applauded a proposal by the International Civil Aviation Organization (ICAO) to reduce insurance premiums that have skyrocketed for local carriers in the wake of Sept. 11 and are likely to be further inflated by the recent China Airlines (華航) crash.

Member airlines of the International Air Transport Association (IATA) voiced their strong support for Canada-based ICAO's plan which calls for the establishment of a non-profit airline insurance company which would seek financing from the world market and provide affordable third-party coverage.

The company would be financed by the airlines with initial state support and provide industry-wide coverage of between US$1 billion -- US$1.5 billion per event, according to the plan by ICAO, which monitors and regulates international air traffic.

According to a statement, member airlines, who were attending IATA's annual general meeting in Shanghai that ended on Tuesday, also asked the ICAO to initiate measures to establish an international convention to limit third party war risk liability of international airlines.

Alex Shih (施建華), secretary general of the Taipei Airlines Association (台北運輸商業公會) -- of which all Taiwan's six airlines are members -- embraced the concept saying that IATA and ICAO have the combined influence to establish a mechanism to bargain for reasonable insurance premiums.

The need to bargain for cheaper premiums has been made essential since insurance companies hiked their rates for third party coverage of war risk -- including acts of terrorism -- since the Sept. 11 attacks.

According to Juergen Weber, Chairman and CEO, Deutsche Lufthansa, insurance costs are "out of control."

"Lufthansa forecasts a 600 percent increase of its overall insurance costs in the year 2002. Against the background of the already dismal situation of our industry after Sept. 11, this cost exposure adds to the economic pressure of all airlines," said Weber in a speech at the Shanghai meeting.

"The cost explosion challenges the efficiency and survivability of an entire industry which over the past decade has struggled to break-even financially," he said.

This will be compounded for Taiwanese airlines whose premiums will be negatively affected by the recent crash of a China Airlines Boeing 747 aircraft into the Taiwan Strait, Shih said.

"We are worried that by the end of the year that premiums will not have come down. Additionally the China Airlines accident will affect all our insurance premiums because the insurance company will categorize this area's risk based on its overall safety record," he said.

Shih said negotiations between Taiwan's airlines -- which have banded together since last December when the government ended its guarantee of risk for the carriers -- with a pool of international insurance companies headed by international insurance firm Marsh Inc are ongoing.

The ICAO proposal to help airlines reduce insurance costs were welcomed by China Airlines and its arch rival EVA Airways Corp (長榮航空).

"We are very happy to see that and move forward and organize airlines to solve this problem," said Roger Han (韓梁中), spokesperson for China Airlines.

Han however was unsure of how much the company's premiums may increase due to the crash, saying that its current coverage wouldn't expire until October.