Air-India's proactive steps in chalking out alternate air routes in the face of war clouds has insured it from a massive hike in premium charges.

Air-India's insurance cover comes up for renewal on April 1, 2003. Even as the global reinsurance market has witnessed drop in capacity, most brokers feel that A-I will not suffer much of a hike in premium this year.

Last year, A-I shelled out $18 million in annual premium for a $2.2 billion coverage. This year, it is expected to pay out less, but for the 3 per cent hike in domestic service tax.

"A-I is a good risk considering its past claims record," said a senior insurance company official.

Last year when the US decided to go to war against terrorism, even as no notices of cancellation were received by the Indian aviation industry, the global market had sought information from insurers on the security aspect of aircraft flying in what is perceived as the war zone.

A-I's steps today is partly in response to global apprehensions, said a senior insurance company official.

The airline has chalked out six alternate air routes for its west-bound flights as part of its contingency plans to avoid war-threatened zones, should the US-Iraq War break out.

While the insurance industry pointed out that this would result in rising costs in terms of fuel charges, it would likely save A-I from having to pay higher premium charge for war cover.

An aircraft cannot fly with hull (body) insurance and spares coverage alone, but also includes third liability risk cover, which amounts to $1.5 billion.

Airlines cannot fly without war cover and, thus, have to seek this coverage from specialists. Since the September 11 terrorist attacks in the US, the availability of this cover has been drastically limited.

War premium on hull saw a rise mid last year when the US talked of war to combat terrorism. This followed a general notice of cancellation issued by the International Underwriting Association of London and Llyods Underwriters' Association with effect from June 10, 2002.

Vessels venturing in international waters 18 degrees north and west of 73 degrees east were forced to shell out higher premium for war risk cover.

Meanwhile, global underwriters are talking of imposing a war surcharge on marine and aviation in the event of war being declared. With limited availability of specialist war cover, this coverage could be withdrawn altogether.

This will result in individual governments having to step in and come to the rescue of the aviation industry as it did following September 11 attacks and provide the necessary coverage.