Insurance rules may cut EU traffic

 - October 31, 2006, 9:51 AM

New European Union minimum liability insurance standards that took effect April 30 are causing some U.S.-based operators to rethink their trips to Europe.

“I’ve gotten more calls about this issue than about any other topic in the past month,” NBAA tax and finance manager Mike Nichols told AIN last month. “Some operators have said that they are going to discontinue all flights to Europe and focus on Asia. One operator in particular said that his company is not going to continue to do business in Europe. So it could end up harming the European Union economy.”

The new regulations require all operators to carry third-party liability and war/terrorism coverage limits based on the mtow of their aircraft. For example, a Citation X, which falls in the 30,000- to 55,000-pound-mtow category, will require approximately $115 million in both liability and war/terrorism coverage. At nearly 100,000 pounds max takeoff weight, a Global Express would require coverage of approximately $216 million. The insurance requirements apply not only when flying to, from or within a European Union member state, but also when simply overflying an EU member state or its territorial waters.

“The biggest issue with this change is the war coverage requirements,” explained Kyle Sparks, senior vice president of general aviation for aviation insurance underwriter AIG Aviation. “Probably 70 to 80 percent of operators already carry aircraft liability limits high enough to meet the requirements. What they don’t carry is the war and terrorism coverage.”

War and Terrorism Coverage

Sparks estimated that the annual premium for the required war/terrorism insurance could range from $20,000 for a Citation X to $35,000 for a Global Express for worldwide coverage. Per-trip coverage is available at an estimated $3,000 to $15,000 per trip. However, those figures are for the added war/terrorism coverage only; if an operator also needs to increase its liability coverage, the premium amount can increase dramatically.

One source estimated that a Global Express operator currently carrying $100 million in liability coverage and $50 million in war/terrorism coverage may see an annual premium increase of $70,000 to reach the required minimum coverages.

To help operators who already carry the required minimum liability insurance, AIG Aviation last month announced a new product called Excess Aviation War Liability coverage. The new product features limits up to $300 million and covers war and terrorism acts such as aircraft confiscation, sabotage, hijacking, unlawful seizure and civil commotion. The coverage can be used to supplement a corporate umbrella policy that already provides the minimum liability insurance.

In addition to the aircraft liability and war/terrorism insurance minimums, the EU regulations require minimum passenger liability coverage of approximately $360,000 per passenger seat, regardless of whether or not the seat is occupied on a particular trip.

“The EU has not provided any suggestions as to how it plans to enforce this new regulation,” Nichols said. “We’re recommending that the operator carry proof of insurance on any flight because the EU regulation specifically states that officials can prevent an aircraft from departing until they have proof of insurance.”