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LONDON-Competition has returned to the airline insurance market with a vengeance.

Airline hull insurance rates declined 12% last year and are expected to plunge another 22% this year, according to Rudolf Enz, deputy head of the economic research department of Swiss Reinsurance Co. in Zurich.

Liability insurance rates, meanwhile, dropped 3% last year and are expected to drop another 20% this year, Mr. Enz said.

But a soft market offering cheaper prices is not the goal of airline risk managers or aviation underwriters, according to delegates and speakers at the 12th International Airline Insurance Conference in London late last month.

Airlines want policy changes and better understanding of their business by underwriters, according to Tony Galbraith, group treasurer of British Airways P.L.C.

In particular, he said, airlines would like:

Non-marine liabilities incorporated into their airline hull and liability insurance programs. Such non-marine risks would include use of ground transport and tour operators liability.

Hull war risks coverage incorporated into airline all-risk hull policies. Up until now, hull war risk has been insured under a separate policy, while liability war risk is included in airlines all-risks liability coverage.

This anomaly is highlighted by the loss of Trans World Airlines Flight 800, which exploded for "as yet unexplained reasons" after takeoff from New York last year, said Mr. Galbraith. The loss could be a hull war risk loss if there was a terrorist explosion or a missile attack; or an all-risks loss if the explosion was caused by mechanical failure.

"If the liability falls under one policy, then why not the hull also?" asked Mr. Galbraith.

Simpler policy wordings. "The (standard) line 'I'll get my lawyers to interpret with your lawyers' is no joke," said Mr. Galbraith. "It benefits no one other than making lawyers more wealthy."

Everyone would benefit if aviation underwriters used the data they had to evaluate each airline's exposures, said Mr. Galbraith. Underwriters also should set up risk assessment procedures similar to those established several years ago by French aviation underwriter La Reunion Aerienne with the help of British Airways, he said. The lack of risk assessment by underwriters "misses an opportunity for risk management investment decisions" to improve an airline's fleet, said Mr. Galbraith.

Airlines should take the initiative, however, to help underwriters understand their risks. And if appropriate coverage is not available in the market, alternative solutions using airline captives could be an option, he added.

Premiums have fluctuated heavily over many years in the airline insurance market, which doesn't benefit anyone, aviation underwriters say.

Because of the fluctuation, worldwide airline hull and liability premiums, excluding hull war risk from 1991 to the end of 1996, have totaled $7.65 billion, while total claims reached nearly $8.9 billion, according to Tony Medniuk, managing director and chief underwriter of the British Aviation Insurance Group in London. This has meant a cumulative loss of $1.25 billion.

"The airline insurance market is currently trading at what I believe to be unsustainably low prices for the maintenance of a long-term healthy business," warned Mr. Medniuk. "Prices, therefore, must rise."

Stupidity and lack of professionalism, not overcapacity, is pushing the aviation market down, however, said Andre Clerc, general manager of La Reunion Aerienne in Paris. "The market is not only driving (itself) straight into the wall, but we're pushing our foot down on the accelerator to make sure we don't miss the bloodbath," he said.

Technology has come up with many advancements that could be used by underwriters to evaluate airlines' risk, said Mr. Clerc. However, underwriters seem to ignore this and focus on only three parameters when insuring hull and liability coverage: the airline fleet's value; the revenue per passenger mile; and the airline's loss experience.

When establishing a premium, no one seems to care about the airline's operating conditions, maintenance procedures, quality of training programs; equipment on board the aircraft, ground installations or assessment of contractual liabilities, Mr. Clerc said.

And underwriters and brokers are equally bad, he said.

"To make a deal, to keep the business, one must reach the lowest possible intellectual and technical level," he said. "We are not afraid (of losing business) because our competitors are good, brilliant, sharp, imaginative and have talent-but because we anticipate they will surpass our own degree of mediocrity."

Aviation insurance only represents about 0.5% of the world's total insurance premium. So if aviation underwriters don't improve their professionalism and their results, their shareholders "will fix the problem" by pulling out of aviation, he warned.

Mr. Medniuk said evaluations such as those Mr. Clerc was requesting are under way. "We have a sophisticated range of statistics, and we do deploy them," said Mr. Medniuk. "But what difference does it make" in the current competitive market? he asked.

La Reunion Aerienne may have a risk assessment questionnaire, "but is (Mr. Clerc) better able to achieve higher rates?" he asked rhetorically.

Swiss Re offers a solution that could benefit underwriters and buyers, conference delegates were told. The company suggests a layered multiyear airline insurance program that would be tailor-made and offer balance-sheet protection to enhance shareholder value.

"A future aviation policy placement may look this way," said Andreas Peter, head underwriter-aviation department for Swiss Re. "Airlines might further improve their risk management and thus be prepared to run an increased retention. Depending on the financial strength, this retention might either be self-funded or be developed, structured and funded by financial solution experts. Specialist aviation underwriters will offer the more conventional, traditional coverage for the core area of the program."

Catastrophe layers then could be funded by the highly capitalized markets that are emerging, he said.