Air India crash likely to raise aviation insurance premiums
What's the story
The recent crash of Air India's AI-171 (Boeing 787 Dreamliner) in Ahmedabad is likely to lead to a hike in aviation insurance premiums.
Experts predict that the incident, along with other global aviation losses, could result in a 5-10% increase in premiums for major airlines.
The rise is expected as global reinsurers are likely to reprice risks following these incidents.
Market dynamics
How aviation insurance is impacted by reinsurance
Aviation insurance is largely driven by reinsurance, with global reinsurers, mainly from London, pricing risk on a portfolio basis.
The recent crash of the Air India aircraft and other aviation losses in the Asia-Pacific region are likely to change how reinsurers assess risk for this region.
Sourav Biswas, Business Head of Aviation Insurance at Alliance Insurance Brokers, said if there's a hardening in the reinsurance market, it would automatically harden rates in the domestic insurance market as well.
Legal influence
Impact of recent London High Court ruling
A recent London High Court ruling has also impacted reinsurance sentiments.
The court ordered reinsurers to pay over $1 billion to leasing firms for aircraft stranded in Russia.
This decision is one of the largest insurance disputes in UK history and is expected to trigger multibillion-dollar reimbursements from reinsurers.
Biswas said combining this huge loss with the Air India accident, reinsurers are definitely going to have a bad day.
Renewal negotiations
IndiGo in the middle of renewal process
IndiGo, India's largest airline, is currently in talks with insurers and reinsurers to renew cover for its fleet of 437 aircraft, mainly narrow-body Airbus A320 family jets.
The airline's insurance cover is estimated at around $20 billion, with an annual premium of $15-17 million.
Industry sources say the recent crash could impact the premium IndiGo has to pay during this renewal process.
Claim potential
Air India crash could become India's most expensive aviation payout
The Air India crash is expected to trigger insurance claims of over ₹1,000 crore. Experts say it could become India's most expensive aviation insurance payout.
The incident has raised significant liability and hull loss concerns for insurers.
Amit Agarwal, MD and CEO of Howden India, said the aircraft damage falls under the aviation hull all-risk section, which covers the declared value of the aircraft along with its spares and equipment.