Lloyd’s May Insure Frequent-Flier Freebies : Transportation: The new type of policy would guarantee tickets in the event that the airline files for bankruptcy.

In an attempt to exploit travelers’ concerns over ailing airlines, a brokerage at Lloyd’s of London is developing insurance that would preserve coveted frequent-flier freebies even if a carrier shuts down.

The new insurance would allow a defunct airline’s frequent fliers to trade their miles for free tickets on another airline, according to John Bell of London’s Norex Insurance Brokers. Norex, a member of Lloyd’s, is putting together a group to underwrite the insurance.

The insurance, to be called “AwardGuard,” is tentatively priced at $75 and could be available within weeks.

The insurance reflects apprehension over the troubled state of the airline industry and suggests how highly travelers value their freebies. Four airlines are in bankruptcy proceedings, and a fifth, Eastern, was liquidated earlier this year. Frequent fliers normally lose their benefits when an airline folds.

Travel industry executives said the insurance would appeal to people who belong to frequent-flier programs at ailing air carriers, such as Pan American World Airways and Trans World Airlines.

“I expect TWA and Pan Am fliers would buy this at a rapid pace,” said C. Thomas Nulty, president of Associated Travel in Santa Ana.

Virtually every airline sponsors a frequent-flier program--such as Pan Am’s World Pass or United’s Mileage Plus--that rewards travelers with free tickets, first-class seats and other freebies. Consumers who join these programs earn free travel by accumulating mileage on a specific airline. Most travelers get a free round-trip coach ticket after piling up 40,000 miles; Pan Am awards a free ticket after 20,000 miles.

The popularity of the programs has soared in the last decade as airlines expanded the programs to include discounts on rental cars and hotels and free tickets on certain foreign airlines. Last year, 650 million people belonged to frequent-flier programs, up from 62 million in 1981, according to the travel newsletter Frequent.

Norex is betting that consumers so value their frequent-flier benefits that they are willing to pay an insurance premium to protect them.

“It’s like losing your savings,” said Los Angeles real estate developer Tye Rubins, who fears that he may not be able to convert his 96,000 miles on Pan Am into free tickets. “The miles are like money to me.”

So far, though, frequent fliers haven’t lost much despite the industry’s difficulties. Eastern’s frequent fliers were absorbed into the program of its sister airline, Continental. And Pan Am is negotiating the transfer of its frequent fliers to Delta, which recently agreed to buy Pan Am’s Eastern shuttle and most of its remaining European routes.

Nonetheless, the fear of losing frequent-flier miles has triggered a stampede for free tickets at several troubled airlines. Pan Am, which filed for bankruptcy protection in January, usually hands out 35,000 free tickets a month, but in June, it distributed 60,000, said Randy Petersen, editor of Frequent, based in Colorado Springs.

Consumers are also cashing in their miles at Continental, Midway and America West, which are also in bankruptcy. “It’s a run on frequent-flier programs, just like runs on savings and loans,” Petersen said.

Petersen expects to market the insurance for the Lloyd’s underwriters through another company he owns. He said it is believed that 5 million people worldwide would be interested in frequent-flier insurance. There are nearly 10 million people in the frequent-flier programs at the four U.S. airlines in bankruptcy, he said.

The insurance would give frequent fliers tickets and other rewards only if they had earned them under the rules the airline established for the program. Petersen said a flier with 18,000 miles would get nothing if the minimum needed for a prize was 20,000, for example.

Petersen said the insurance would be available as soon as the Lloyd’s underwriting group is assembled, possibly within several weeks. He said it was possible that the underwriters would not be found, but he considered that unlikely.