Airline insurers 'cash in on terror'

MAJOR players in the global insurance market are under investigation for alleged price-fixing and profiteering in the wake of 11 September.

The world's 20 biggest insurers and brokers are said to have colluded to exploit airlines by providing war risk cover at vastly inflated prices. If found guilty, they face huge fines.

Senior insurance sources in London said the complaints stem from deals put together soon after 11 September. At that stage, traditional insurers refused to provide essential terror and war risk cover, but governments had yet to step in with emergency insurance back-up.

The European Commission has now written to ten insurers, including Lloyd's, Swiss Re and AIG, as well as 11 brokers such as Willis, Aon and Marsh. It is understood that Brussels was responding to complaints from French airlines, though other carriers are believed to have lodged protests. Unless the insurers respond quickly, they could be fined heavily - even if they are cleared of any wrongdoing.

Before the 11 September attacks, terrorism cover for airlines was usually included free in most standard policies.

Government-backed insurance programmes designed to fill the gap will expire on 20 March in Britain and at the end of the month in the rest of Europe.

But one executive involved in the negotiations claimed airlines had been 'ripping off' passengers by putting surcharges on tickets that bore no relationship to the increased costs of insurance and security.

BA claimed that its insurance and security surcharge - at present £5 for return flights - made only a contribution towards the extra costs it had incurred after 11 September.