Cartel-busters step up inquiry into airline insurance premium rises

Date: 14/02/02

By Laurence Frost

LLOYD'S of London is at the centre of a European Commission investigation into claims that leading insurers met to fix premium increases and reduced cover for airlines, just three days after the 11 September attacks.

A formal complaint from France's National Commercial Aviation Federation (FNAM) has prompted EU cartel-busters to step up an inquiry already begun into alleged anti-competitive agreements between underwriters.

Soon after the Twin Towers tragedy, airlines around the world were given one week's notice of the cancellation of their war risk liability cover and offered drastically reduced cover at a higher premium.

FNAM, whose members include all major French airlines including Air France, has submitted new evidence to the Commission supporting widespread allegations by EU airlines of insurance price-fixing.

The documents show that FNAM members all received notification of the new policies on offer at the same increased premiums - irrespective of the different risks each airline might be exposed to - with a date by which to respond.

'What was clear was that these changes were communicated in the same terms, at the same time and often in the same words,' said a French aviation source.

'The deadlines were identical.'

The EU executive is said to be investigating contacts between major players on the London insurance market including Lloyd's, Global Aviation, Westminster Aviation Insurance Group, Swiss Re and AIG.

Sources say FNAM has asked EU officials to look into a London meeting between underwriters held at the initiative of Lloyd's on 14 September, when it believes the changes were agreed.

Ian MacFarlane, aviation manager at the Lloyd's underwriters' association, denied that Lloyd's had organised a meeting, but would not say whether one had taken place.

The revelations come as the Commission and airlines try to increase the pressure on insurers to lower premiums and restore war risk cover from the €57 million on offer since the US attacks to its previous levels of 1.7-2.3 billion euro.

'It's almost extortion,' said Rene Fennes of the Association of European Airlines. 'Governments are looking the other way.'

Germany, Denmark and Sweden are among countries said to be calling for an end to the emergency guarantees offered by EU governments to their airlines since September.

Luxembourg has already withdrawn its cover from flag carrier Luxair.

Transport Commissioner Loyola de Palacio last week suggested airlines could set up their own mutual fund to cover liabilities from terrorist attacks, taking their business away from the established insurance markets.

'We have still got no sign that it will be possible to go back to the market,' de Palacio's spokesman said.

'The prices remain too high.'

Moves towards a mutual fund are likely to be discussed when the ad hoc committee of member state experts on airline insurance meets tomorrow (15 February).

Lloyd's of London is at the centre of a European Commission investigation into claims that leading insurers met to fix premium increases and reduced cover for airlines, just three days after the 11 September 2001 attacks.