Aviation Insurance

Federal Insurance Program Needs Improvements to Ensure Success Gao ID: RCED-94-151 July 15, 1994

The government sometimes calls on commercial airlines to transport troops and supplies when its own airlift capacity falls short. The insurance the Federal Aviation Administration (FAA) issues, called war-risk insurance, covers losses resulting from war, terrorism, or other hostile acts. During the Persian Gulf war, the Aviation Insurance Program helped fill the void left when commercial insurers hiked premiums or canceled airlines' war-risk coverage. However, the program's future success could be jeopardized because (1) available funds are insufficient to pay for potential losses and (2) delays in claims payments have adverse consequences for both the airlines and the government. One way to deal with the problems of funding and the timeliness of payments would be for Congress to provide the Transportation Department with access to money to pay claims that exceeded available funds. The program's success is also threatened by the airlines' uncertainty about FAA's war-risk coverage and concerns about perceived gaps in the coverage as compared with the coverage provided by commercial policies. Weaknesses in the process used to issue war-risk insurance could also delay the timely payment of claims. GAO believes that FAA should require airlines registered for war-risk insurance to routinely submit copies of their current commercial war-risk policies and any subsequent changes as a stipulation for receiving insurance under the Aviation Insurance Program. Finally, Congress needs to clarify whether FAA must obtain a presidential determination before issuing nonpremium insurance and extending the policies for another 60 days.

GAO found that: (1) the Aviation Insurance Program does not have sufficient funds available to pay potential insurance claims for many of the aircraft registered for the program; (2) FAA inability to pay a claim promptly could cause a financial hardship for the affected airline, jeopardize other airlines' confidence in the program, and reduce the airlines' willingness to provide needed airlift services; (3) FAA insurance policies do not specifically provide the same comprehensive coverage as commercial insurance policies; (4) although FAA recognized the need to revise its war-risk policies as early as May 1990, it did not complete new nonpremium policies until April 1994 and still has not established a date for issuing its new premium policies; and (5) weaknesses in the administrative process could hamper the program's effectiveness and result in delays in claims payment.


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