Following the 9/11 terrorist attacks, airlines were affected by a worldwide cancellation of third-party liability war risk coverage in the commercial market and significant increases in the costs of other war risk insurance. The commercial insurance market has since stabilized, and a number of air carriers are again purchasing war risk coverage from private insurers. A series of airliner losses in 2014, however, may lead to increases in aviation insurance premiums. These losses include the disappearance of Malaysia Airlines flight 370 with 239 people on board over the Indian Ocean in March, followed by the shooting down of Malaysia Airlines flight 17 over eastern Ukraine in July, which killed 298 people on board. The insurance losses in 2014 may also lead to higher premiums for "all-risk" policies. Subsequently, it has been extended several times, most recently in the Consolidated Appropriations Act, 2014 ( P.L. 113-76 ). The expansion of the Aviation War Risk Insurance Program was not the only government response to the 9/11 attacks relating to the insurance market. Differences between the Aviation War Risk Insurance Program and the TRIA program are discussed in Appendix B .

	FAA's Premium Aviation War Risk Insurance Program

		Program Overview27

As of January 2014, the FAA's Aviation War Risk Insurance Program provided coverage to 44 U.S. air carriers that represented 99% of the total revenue-passenger-miles (RPMs) flown by all U.S. carriers in FY2013. By August 2014, it reduced that estimate to $125 million. Extent of Coverage

By statute, the coverage offered under the program begins with the first dollar of loss and reimburses 100% of losses. 5. 6. FAA is charged in 49 U.S.C. §44306 with basing the premiums charged on the risk assumed by the program "to the extent practical." According to FAA, most of the premiums paid for the program's coverage have been affected by the cap. Proposals for Change

On March 31, 2014, the Secretary of Transportation submitted to Congress a legislative proposal to reform the Aviation War Risk Insurance Program, permanently authorizing it with a reduced overall scope. Specifically, if the proposal were enacted, FAA would:
continue to provide war risk coverage for airline losses involving the use of nuclear, biological, chemical, and/or radioactive (NBCR) weapons, as such coverage is not available in the commercial market; provide full aviation war risk coverage, at the discretion of the Secretary of Transportation, for 90 days in the event of a widespread cancellation of coverage by the private insurance market, similar to the market disruption experience following the 9/11 attacks; and continue to provide non-premium war risk insurance for carriers operating under Department of Defense contracts in support of national defense. The current proposal is not the first proposed change to the Aviation War Risk Insurance Program in recent years. These budgets would have implemented a $150 million deductible for hull and liability exposures under the program. The Aviation Insurance Revolving Fund, currently over $2 billion, is invested in U.S. Treasury securities, as is the case with most other U.S. government funds. Appendix A. Any losses covered under TRIA would be paid from the government's general fund. The statute requires private insurers to offer coverage under the same terms as insurance against losses from causes other than terrorism, but these insurers may charge a separate premium for this coverage and the law does not specifically limit this premium.
Following the terrorist attacks of September 11, 2001, coverage for such attacks, and for "war risks," became difficult, if not impossible, for airlines to purchase from private insurers. In response, Congress passed expansions of the Federal Aviation Administration (FAA) Aviation War Risk Insurance Program. The amended statute (49 U.S.C. §44301 et seq) requires that the FAA offer war risk insurance to U.S. airlines with the premiums based on the cost of such coverage prior to the 9/11 terrorist attacks. The federal coverage under the program is relatively expansive, with coverage provided after the first dollar of losses and with a broad definition of what constitutes a war risk loss. The expansion of the program was limited in time, but has been extended several times over the years, often as part of appropriations legislation. The last extension was in the Consolidated Appropriations Act, 2014 (P.L. 113-76), which extended the expanded program to September 30, 2014.
Up until 2014, most U.S. airlines purchased the FAA coverage and generally supported the existing program against proposed changes. In 2014, the number of air carriers purchasing insurance and the premium volumes dropped. This movement away from government insurance has occurred against a backdrop of increased private insurance capacity and lower prices. A recent series of large aircraft losses, including the disappearance of Malaysia Airlines flight MH370 in March 2014, the shooting down of Malaysia Airlines flight MH17 over eastern Ukraine in July 2014, and attacks on aircraft on the ground in Pakistan and Libya, however, may lead to higher rates. It is unclear how much rates may increase and whether higher premiums might lead the airlines to again seek coverage from FAA, if such coverage remains available after FY2014.
Three claims have been filed by airlines under the current Aviation War Risk Insurance Program and claims payouts have been minimal. The premiums paid for the insurance are deposited in a dedicated fund at the Treasury with the balance, currently over $2 billion, invested in U.S. Treasury securities. While this may seem a large sum, according to FAA, the statutory cap on premiums has resulted in past premium amounts insufficient to cover the full risks assumed by the government. For example, the 9/11 attacks are estimated to have caused approximately $5.6 billion in aviation hull and liability losses, adjusted for inflation. A much smaller event could cause losses large enough to deplete the fund and require general fund revenue to cover claims.
Several presidential budgets in recent years have called for changes to the program to reduce government exposure. On March 31, 2014, the Secretary of Transportation submitted a draft legislative proposal to Congress which would make the program permanent but at the same time reduce its scope. Specifically, the administration proposal would create permanent coverage for war risk losses from nuclear, chemical, biological, and radiological events, while giving the Secretary the authority to offer full war risk coverage for 90 days after a widespread disruption in the insurance market, such as that following the 9/11 attacks. The administration draft proposal has not been incorporated into legislation introduced in the 113th Congress.