KANSAS CITY, Mo.-The one certainty for commercial aviation insurers as they look at finally generating underwriting profits and for airlines as they await additional and meaningful terrorism coverage is that significant market changes lie ahead, according to a panel of experts.

Worldwide, commercial aviation premiums will have to double to generate satisfactory underwriting profits, and third-party terrorism coverage likely will become available again, but only through special facilities, according to a London underwriting executive.

The future of commercial aviation insurance costs and third-party terrorism coverage was assessed during a panel discussion at the Aviation Insurance Assn.'s 26th annual conference, held in Kansas City, Mo., last week.

About two weeks after the Sept. 11 terrorism attacks, aviation insurers canceled airlines' third-party terrorism coverage and offered to write back only $50 million of the coverage-2.5% to 5% of most airlines' original limits. The once-free coverage, though, now cost each airline $1.25 per ticketed passenger-or tens of millions of dollars.

Under various airline contracts, however, the coverage was inadequate, so various governments created temporary excess coverage programs for their domestic carriers. Those programs, though, are scheduled to expire within the next several weeks.

There are solutions at hand, but they will reshape the commercial aviation insurance market, according to Peter L. Butler, underwriting executive with Global Aerospace Underwriting Managers Ltd. of London.

Mr. Butler acknowledged airlines' complaints that the insurance industry's terrorism coverage surcharge is unfair because it does not distinguish between short-haul and long-haul carriers.

But Mr. Butler defended the surcharge as a necessary capital infusion for insurers and the quickest way to get airlines back in business. If insurers had to negotiate surcharges individually with every airline, "we'd still be grounded," he asserted.

While GAUM is not "not wedded" to maintaining the $1.25 surcharge, "we are wedded to generating enough premium to earn a profit in a normal year," Mr. Butler emphasized. Aviation insurers have generated underwriting profits in only three of the past 15 years, he said.

"If in the aftermath of Sept. 11 we don't deliver a return, our shareholders won't understand or forgive us" and will move their money elsewhere, he said.

GAUM estimates that aviation underwriters' annual premium volume must increase by approximately 167%, to $4 billion, to cover losses and provide the underwriters a 10-point underwriting profit margin.

With the $50 million third-party terrorism coverage sublimit in place and if aviation insurers maintain solid pricing discipline, insurers likely would not have to disrupt policyholders' coverage if terrorists targeted airlines again, Mr. Butler said.

He suggested, however, that underwriters may have to modify their standard war and allied perils exclusion, which is "becoming outdated," to bar coverage for biological and other perils that the exclusion does not address.

As airlines look for excess terrorism coverage to replace the government programs that are set to expire soon, GAUM likely will not offer any additional coverage, Mr. Butler said. Noting GAUM shareholders' concerns, he observed, "The world is not any safer" than it was in September.

But, Mr. Butler assured airlines that various market initiatives are being developed.

For example, the 33-member board of the Montreal-based International Civil Aviation Organization later this month is scheduled to unveil its proposal, Mr. Butler noted.

Under the International Civil Aviation Organization's preliminary premise, the organization would create an initial $850 million fund to cover airlines' third-party terrorism losses by charging each member country 50 cents per ticketed passenger flown by airlines based within the member's borders.

ICAO still has to determine how such a fund would dovetail with other excess facilities and how much coverage would be available to airlines.

The proposal has drawn wide support from among the organization's 187 member countries, an ICAO spokesman said.

David Binks, a director with Heath Lambert Group of London, moderated the session.