Aviation Insurance:

Federal Insurance Program Needs Improvements to Ensure Success

RCED-94-151: Published: Jul 15, 1994. Publicly Released: Jul 15, 1994.

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Pursuant to a congressional requirement, GAO reviewed the Federal Aviation Administration's (FAA) Aviation Insurance Program, focusing on: (1) whether sufficient funds are available to pay the insurance claims; (2) how FAA war-risk coverage compares with that of commercial insurers; and (3) how FAA administers the program.

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.

Matters for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: The 104th Congress addressed the majority of this concern through the National Defense Authorization Act for Fiscal Year 1997. The act made funds available to indemnify the program for losses incurred under DOD-sponsored flights, which account for the majority of flights insured. Still, gaps remain in the program's ability to pay claims for non-DOD flights. The 105th Congress enacted legislation (H.R. 2169, Public Law 105-66, providing for binding arbitration to address other funding-related gaps for non-DOD-related flights.

    Matter: Congress should provide a mechanism by which the Department of Transportation (DOT) can obtain access to financial resources so that it can pay claims that exceed the Fund's balance within the normal time frames for commercial insurance. The source of funds could include a permanent appropriation for losses under premium insurance and the authority to borrow funds from the U.S. Treasury to pay losses under nonpremium insurance, which DOT would repay when it was reimbursed by the indemnifying agency.

  2. Status: Closed - Implemented

    Comments: Congress has not taken any action to clarify whether a presidential determination is required before nonpremium insurance can be issued. However, the Federal Aviation Administration (FAA) is in the process of finalizing revisions to part 198 of the war risk insurance regulations. Included in this revision is FAA's declaration that the presidential determination requirements were met when the president signed the required indemnification agreements.

    Matter: Congress should clarify the issue of whether a presidential determination is required before nonpremium insurance can be issued and for each subsequent 60-day extension.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: FAA has a premium policy on file that would be used should the need arise. FAA and carriers would negotiate specific terms for each carrier. The policy is continuously revised; Secretary of Transportation's approval is not necessary.

    Recommendation: The Secretary of Transportation should direct the Administrator, FAA, to set a date for completing the revision of FAA premium war-risk policies to make them more consistent with commercial war-risk policies.

    Agency Affected: Department of Transportation

  2. Status: Closed - Implemented

    Comments: During early 1995, FAA sent letters to 46 airlines registered for federal war-risk insurance requesting that they submit their commercial war-risk policies. As of September 1995, 27 of 46 airlines had complied by submitting their policies. Further, DOD is requiring that in FY 1996 all CRAF participants submit their commercial policies and changes to FAA before contracts can be approved. This will be a continuous requirement.

    Recommendation: The Secretary of Transportation should direct the Administrator, FAA, to require airlines to submit copies of their current commercial war-risk policies and any subsequent revisions as a condition for obtaining premium and nonpremium insurance, and periodically verify the information submitted by the airlines.

    Agency Affected: Department of Transportation

 

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