16. INSURANCE IN THE AVIATION SECTOR
(23813)
12423/02
COM(02) 521
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Draft Regulation on insurance requirements for air carriers and aircraft operators.
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| Legal base: | Article 80(2) EC; co-decision; qualified majority voting
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| Department: | Transport
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| Basis of consideration: | Minister's letter and SEM of 11 December 2002
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| Previous Committee Report: | HC 152-xl (2001-02), paragraph 5 (30 October 2002)
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| To be discussed in Council: | Not known
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| Committee's assessment: | Legally and politically important
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| Committee's decision: | Cleared
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Background
16.1 In the wake of the terrorist attacks of 11 September
2001 the Commission has considered a number of insurance issues
in relation to the aviation industry. The Commission has decided
a Regulation is necessary to introduce minimum levels of liability
insurance relating to passengers, third parties, baggage, mail
and cargo. We have already considered, but left uncleared pending
receipt of further information, a proposal from the Commission
for such a Regulation.[50]
16.2 The draft Regulation would apply to almost all flights
to or from Community airports or the territory of a Member State
and includes flights performed by state aircraft. All aircraft
operations, with the exception of flights out and back from the
same airport, would be subject to the Regulation. Non-power-driven
aircraft and/or ultra-light power-driven aircraft would be excluded.
Member States would be required to carry out regular inspections
of both Community and non-Community aircraft to ensure the requirements
of the Regulation were complied with. Member States would be required
also to refuse access to routes into or within the Community or
the right to overfly their territory where the requirements of
the Regulation were not met.
The Minister's letter and his Supplementary Explanatory Memorandum
16.3 The Minister for Transport, Department of Transport
(Mr John Spellar), in response to our request, now provides us
with a partial Regulatory Impact Assessment (RIA), based partly
on responses to the department's consultations on the proposal.
16.4 In its opening remarks the RIA notes the Commission
has given no objective justification for imposing minimum levels
of insurance nor a cost-benefit or impact assessment.
16.5 The RIA points out the draft Regulation would require
all aircraft weighing less than 25 tonnes to have the same minimum
level of third party cover. A single-seat private aircraft would
fall into the same category as a 66-seat BAe ATP aircraft. Unfairly
this does not recognise significant differences in aircraft types
below 25 tonnes. The draft excludes flights starting from and
finishing at the same airport. Such aircraft are equally capable
of causing third party damage as the same aircraft operating between
different airports. The proposal also excludes non-powered aircraft
and ultra-light aircraft, although capable of causing third party
damage, from the obligation to have insurance.
16.6 Another issue of equality and fairness the RIA points
up is that the proposed Regulation requires third-party liability
insurance for each aircraft and incident. Since 11 September 2001
the commercial insurance industry offers such cover only up to
a very low threshold in respect or war and terrorist risks for
each and every incident. Higher levels of cover currently available
are offered on an aggregate basis or, at best, in relation only
to a very limited number of incidents. Thus the draft demands
a category of insurance that, at present, cannot be obtained commercially.
16.7 The RIA says the Civil Aviation Authority (CAA)
already requires minimum levels of insurance for an operating
licence for air carriers. There is no evidence of unmet claims
due to inadequate cover: most commercial air carriers have insurance
well in excess of CAA statutory minima. UK operators of private
aircraft are not obliged to have passenger or third party insurance.
But analysis of statistics for the past five years show, apart
from one pilot flying illegally, so invalidating his insurance,
no evidence of claims for damages not being met either from insurance
or directly by the party responsible. So in assessing benefits
of the proposal the RIA concludes that without any firm evidence
that claims for compensation in respect of passenger death and
injury, and damage to third parties, have not been met, it is
difficult to anticipate any quantifiable benefits from the proposal
for those affected by incidents.
16.8 The RIA does note, however, that the proposed Regulation
would create a level playing field within the European Community,
obliging all air carriers to insure to the same minimum levels.
As most other Member States have lower minima than the UK the
proposal might improve the competitiveness of some smaller UK
airlines. (As noted in the preceding paragraph most large airlines
insure to significantly higher levels and would be unaffected.)
16.9 The RIA estimates conservatively the cost to the
UK industry of increased premiums as £50-60 million annually.
The cost of enforcement of the proposal is estimated at £250,000
annually.
16.10 The RIA records that the Government consulted the
following organisations about the draft Regulation:
- British Air Transport Association (BATA);
- Board of Airline Representatives in the UK (BAR-UK);
- General Aviation Manufacturers and Traders Association (GAMTA);
- British Helicopter Advisory Board (BHAB);
- Royal Aero Club of the United Kingdom (RaeC);
- Aircraft Owners & Pilots Association (AOPA);
- International Union of Aviation Insurers (IUAI);
- Civil Aviation Authority (CPA).
16.11 Of these GAMTA, BHAB, RAeC and AOPA, although sympathetic
to the principle of mandatory insurance, reacted very strongly
to the financial impact of the very high level of minimum insurance
proposed. The draft would have little impact for BATA and BAR-UK
as they already insure to higher levels, but the former noted
only aggregate-based cover is currently available for third-party
war risks. The IUAI provided analysis of insurance cost in the
private/light aircraft sector. The CAA drew attention to the problem
of enforcing minimum insurance requirements on overflying aircraft.
16.12 The RIA concludes that the draft Regulation as
it stands would impose costs on aircraft operators of the order
of at least £50 million per year, but would yield no identifiable
benefits in terms of increased compensation to passengers and
third parties. It would not much affect large airlines, with the
exception of third party war risk, but might remove a slight competitive
disadvantage to the benefit of small UK airline businesses. It
notes the Government whilst supportive of harmonised insurance
requirements in principle, would press strongly for several aircraft
weight categories below 25 tonnes and for more realistic third-party
insurance levels in all categories and would question the need
for minima on private aircraft operators, particularly at the
levels proposed, and the legality (which includes the possible
subsidiarity problem) and practicality of imposing insurance requirements
for overflying aircraft.
16.13 In his letter the Minister tells us that:
"It is clear from the assessment that there is not a compelling
case for regulating air carriers and aircraft operators in the
way proposed by the Commission. Whilst we support the principle
of harmonised insurance requirements in Europe, as presently drafted
the proposal would impose a considerable financial burden on owners/operators
of private aircraft without any corresponding benefits for passengers
or third parties.
"The Government therefore plans to resist the proposal when
it is discussed at Council Working Group level, but if there should
be a consensus in favour of establishing mandatory requirements
we would argue strongly for categories of aircraft and levels
of insurance that reflect those currently in place in the UK."
Conclusion
16.14 We are grateful to the Minister for his response
to our request for further information. We agree that the document
offers little benefit at a substantial cost and note with approval
the Government's intention to resist this proposal, or at least
to have it heavily modified. We now clear the document.
50 See
headnote to this paragraph. Back
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