Insurance premiums to rise in bad year for aviation, say experts

Hindustan Times

14 hours ago

New Delhi It's a payout no one -- neither airliners nor passengers -- hopes would ever come to pass, but aviation insurance is set to get costlier amid rising risks and air fatalities, experts say.
Mishaps and war have already ratcheted up the stakes, capping a dream run of low, stable premiums, which are poised to jump this year. The lumbering Russia-Ukraine conflict, a spate of air accidents and the apparent start of an Israel-Iran clash have added significantly to those risks, an industry executive said, requesting anonymity.
Earlier this month, a UK judge ruled that insurance companies must compensate aircraft lessors and airliners for planes seized by Russia as part of its counter-sanctions reprisal, adding a new dimension to aviation insurance.
The year 2025 was already beginning to prove to be a tipping point with the Potomac River mid-air collision in the US this January. It shattered the calm of 2023 when no large plane was involved in a fatal accident, according to aviation groups. The encounter between American Airlines Flight 5342 and an army helicopter near Washington was the deadliest US disaster in over a decade.
'This changed sentiments dramatically in New York and London, two financial centres where the largest aviation reinsurance businesses are concentrated,' said Mathew Pannerselvam of Troth Broking Ltd.
The crash of Air India AI 171 outside Ahmedabad's airport on Thursday has already made 2025 the deadliest in a decade globally with over 480 fatalities, according to figures from the Virginia-based Flight Safety Foundation.
The London, Gatwick-bound Boeing 787 jetliner crashed moments after taking off, unable to power its initial climb and barely able to clear a neighbourhood just outside the runway.
Insurance payments to follow from the Air India crash are likely to be the costliest in Indian aviation history because of the extent of damages, including to properties on the ground and non-passenger fatalities, the executive cited in the first instance said. The accident resulted in the complete destruction of the aircraft and the death of all but one passenger.
The payouts could potentially reach nearly $100 million if the totality of liabilities is taken into account, said a second executive from Marsh India, an investment advisory firm, requesting anonymity.
The main insurer of the Air India Dreamliner was TATA AIG while several other firms underwrote part of the liabilities, including National Insurance and Oriental Insurance, a third industry analyst said, asking not to be named.
Most large insurers opt for reinsurance, an arrangement where the original insurance firms protect themselves against losses by transferring their own risks to a reinsurer at a cost. 'In aviation, this is the norm and very little risks remain with the original insurers,' one of the industry executives cited above said.
In the case of the AI 171 flight too, just about 10% of the liability will have to be borne by Indian insurers, whose aviation businesses are covered under a global reinsurance programme, the third analyst cited above said.
Aviation insurance is never a single product, analysts said. A commercial plane typically is covered by several types of risk packages. The most critical ones include cover for hull losses during flight and taxiing, as well as when an aircraft is stationary.
Passenger liability covers allow airliners to compensate the next of kin in case of fatal accidents. Tata Sons, the conglomerate that owns Air India, on Thursday announced that it would pay ₹1 crore to the next of kin of each passenger on board the fatal flight.
Airliners also need to take out a public liability policy for third-party compensation, just as in car insurance, to pay for damages caused to other aircraft, objects or people.
Insurance premiums make up no more than 1.5-2% of airlines' costs, very little compared to spending on fuel or maintenance, and premiums can range from $45000 to $150,000, depending on aircraft type, age and routes travelled, among other parameters, according to data from AerCap Holdings NV. The insured value of a commercial jetliner can range from $112 million to $230 million.
The insurance industry is 'good at adapting to changes' and risks from emerging wars were earlier considered 'second-order risks', Bruce Carnegie-Brown, the chairman of Llyod's of London, one of the largest aviation insurers, told Bloomberg last month.