The Thing Is: Insurance premiums

Buying insurance is rarely a pleasant or interesting occupation. But it has to be done, particularly for an airline that holds the lives of thousands of passengers in its hands every day.

It is even more unpleasant to find that your insurance premiums have quadrupled. Airlines are now in this situation, as the worldwide total of insurance liability premiums has increased to as much as $5bn (£3.2bn), compared to $1bn in 2000, according to Ken Coombes, a vice president in charge of aviation insurance at Marsh, the giant insurance broker.

It is not surprising that the main reason for the rise is the ongoing impact of the World Trade Centre attacks. The total premiums that airlines pay for war and terrorism risk has soared – from $80m in 2000 to $3bn this year.

Despite the inflation, the terms are more onerous and the amount the airlines can claim has fallen, says Mr Coombes. But countries, and companies, have a varied response to the problem.

In the US, and in Europe until recently, Governments supported airlines with insurance for large claims, although the commercial market provided a limited amount. But the European Commission has just banned this practice. The UK Government has therefore pulled its insurance system, although the rest of Europe hasn't followed suit. France and Germany have defied the commission and carried on providing insurance to their airlines.

British Airways was happy with the withdrawal of government support and was the first UK airline to take up insurance on the commercial market. However, Virgin Atlantic, one of Richard Branson's airlines, said it was "extremely disappointed" at the Government's decision and complained of the lack of choice in the commercial market.

Brokers also complained. In a letter to Loyola de Palacio, the EU commissioner for transport and energy, the London Market Insurance Brokers' Committee said: "The limited market recovery is very fragile, that it provides no certainty of continued coverage, and current third-party war and terrorism liability limits are totally inadequate."

Airlines are not the only industry to be affected by the large hikes in insurance. Tall buildings are also considered a target, so structures such as the Empire State building face higher premiums.

Mr Marsh also indicates that the insurance rises will affect another troubled part of the aviation industry – air traffic control centres. Britain's recently prvatised system, the National Air Traffic Services, is struggling to cope with the downturn. Mr Marsh says that air traffic control and other aviation service providers are seeing similar increases in premiums.