Some of the larger airlines could quite easily self-insure their hulls, if they either own them or have a structure in place that would be acceptable to their financiers. In fact, it's something that has been quietly going on for many years.
Hull liability, though, is not the problem. It's third party liabilith claims arising under War Risks cover: Insurers will provide limited war risk coverage to carriers considered good risks; however, coverage for death or injury to third parties and property on the ground has been limited to $50 million for any one event and in aggregate.
I've seen reports that the claims from last week's attacks could rise as high as US$100 billion. Those sorts of numbers could never be covered by any airline - or even consortium of airlines; and with the exception of two or three of the world's largest insurers (AIG, which owns ILFC springs to mind) I doubt that even they could carry more than a percentage. Cover effected through Lloyds of London is paid out by 'Names' - high net worth individuals who have unlimited liability. The number of Names has decreased over the last decade or so due to various problems, not least that many felt they were being ripped off by underwriters and a long-standing suit against Lloyds resulted.
The fact is that all sectors of the insurance market are there to make money - the general concept being that they build up vast amounts to cover any possible losses; and anything over and above that amount - as determined by actuaries - is deemed to be distributable profit. With a situation such as we have seen, these reserves are insufficient to withstand another such incident (and in the cases of some insurers may well be insufficient to withstand existing liabilities) - and therefore they have to increase premiums to cover this exposure.
Do I think that a 500% premium increase for a carrier that has no history of losses is fair? Hell, no. But that's the sort of deficiency in the premium pool that the insurers are facing.
In a situation such as this, there is another option - government cover. Following the City bombings, the government set up its own underwriter - Pool Re, as I recall - to write cover for businesses in the City when the markets refused to. If governments around the world agree to act as Insurer of Last Recourse, then this may well solve the problem. In effect though, the only governments at risk will be the US, UK and other Coalition member countries and of course any countries which face the wrath of the Coalition forces.
My knowledge of the insurance business is fairly limited, so if I have made any errors in the above analysis please accept my apologies - and hopefully someone in the know such as BFU could correct them?
[ 21 September 2001: Message edited by: The Guvnor ]