EC gears up for investigation into airline insurance cartel

The European Commission has launched a formal cartel investigation into price-rigging in the airline insurance sector, following the 11 September attacks

It is believed that the commission's transport unit will look into the role of several major players in the European insurance market, including Lloyd's of London, AIG and Swiss Re. Several leading City firms and barristers' chambers have been instructed, although none are willing to be publicly identified.
The commission was already looking into suspected collusion between insurers over the withdrawal of war risk insurance following the World Trade Center attacks. However, the cartel investigation relates to the reinstatement of the insurance at what complainants believe was an artificially high price. Given the plight of the airline industry since the Twin Towers disaster, the investigation is likely to be highly politicised.
A number of major insurance companies have been served with Article 11 letters, the first step in the formal procedure. The letters are a fact-finding mechanism for the commission; they contain a list of questions the companies must answer or face an automatic fine. A source close to the commission has indicated that replies have been received from the companies under suspicion and that the regulator has enough evidence to move on to the next stage of the investigation.
It is understood that the French National Commercial Aviation Federation filed an official compliant with the commission, but numerous others are expected to have been filed.
Following 11 September, the insurers cancelled war risk insurance with seven days notice. In the UK, the Government stepped into the breach to provide temporary cover, and the insurers later returned to the market, albeit with reduced cover for war risk. It is alleged that the insurers colluded to artificially inflate the price of the insurance. It is rumoured that a group of companies met at Lloyd's offices and a price-fixing agreement was hammered out.
The insurance companies are gearing up for a fight, but they will have a difficult task. The commission has been eager to investigate price collusion in financial services for some time and mass redundancies in the airline industry since 11 September will make the insurers a popular target.