Air India crash: Who will bear cost of one of the deadliest aviation disasters?
A London-bound Air India flight crashed in Ahmedabad on Thursday, shortly after take-off. The flight crash, one of the deadliest accidents in India's history, not only left behind devastation for the families of at least 256 crash victims, but also dealt a huge financial blow to the aviation industry, one that could linger for years to come.The Boeing 787-8 Dreamliner crash could possibly become the costliest aviation insurance claim in the country's history. advertisementBut who will bear the financial burden of the insurance and compensation payments? India Today attempts to break it down.COMPENSATION PAYOUTS
An important set of rules that will determine the compensation for the passengers of a crash is the Montreal Convention, 1999. The Montreal Convention is an international treaty that governs airline responsibility for death or injury to passengers, as well as for damage, loss, or delay of baggage and cargo. According to this treaty, Air India is liable to pay a fixed amount of 1,51,880 Special Drawing Rights (SDRs) per victim. SDRs are a unit of account created by the International Monetary Fund (IMF), based on a basket of five currencies, ensuring consistent valuation worldwide. At the current rate of approximately Rs 120 per SDR, this translates to about Rs 1.8 crore per victim.advertisementWith 256 lives lost, including 231 passengers and 10 crew members, the minimum compensation liability for Air India under the Montreal Convention exceeds Rs 435 crore. However, crew members are typically compensated under employment contracts or workers' compensation laws, not directly under the Montreal Convention, which may slightly adjust the total payout figures.The Montreal Convention mandates airlines to make an advance payment of at least 16,000 SDRs (about Rs18 lakh) to victims' families promptly, even before any investigations conclude. This payment is usually made to cover the immediate needs of the family, such as funeral and related expenses. While the fixed SDR compensation sets a baseline, families of the victims can seek higher payouts if any negligence or fault by the airline is proven.Beyond the legal obligation under the Montreal Convention, the Tata Group, which owns Air India, has pledged an additional Rs1 crore compensation each for the victims' families. This decision, independent of the Montreal Convention, could bring the total compensation per victim to approximately Rs 2.8 crore, combining both statutory and voluntary payouts.INSURANCE PAYOUTS TO AIR INDIAHull InsuranceHull insurance is a specialized form of aviation insurance that provides coverage for physical damage or loss to an aircraft itself, rather than covering third-party liability or passenger injuries. advertisementThis insurance, essential for aircraft owners, operators, and lessors, protects the financial value of the aircraft against a range of risks, including accidents, collisions, fire, natural disasters, and sometimes even disappearance of a flight.The Boeing 787-8 Dreamliner involved in the Ahmedabad crash was insured under a hull insurance policy valued between 80 million US Dollars and 115 million US Dollas (Rs 665 to Rs 960 crore). Given the aircraft was a total loss, insurers would possibly be liable to pay out the full insured value of the aircraft.Liability InsuranceThe Montreal Convention requires airlines to carry liability insurance to ensure they can meet their compensation obligations to passengers and cargo owners in the event of accidents, injury, or loss. This requirement is designed to protect passengers by guaranteeing that airlines have the financial resources to pay compensation as mandated under the Convention's strict liability regime. The Convention says that all air carriers engaged in international carriage must maintain adequate insurance covering their liability for death, injury, baggage, and cargo claims.For Air India, this liability insurance is expected to cover the Rs 435 crore in passenger compensation and additional claims related to the damaged hostel and other possible third-party losses.advertisementTOTAL FINANCIAL COSTOverall, the insurance claims and the compensation payouts together can be forecasted to range between 120 million US Dollars and 150 million US Dollars (Rs 1,000–1,250 crore), which includes the hull insurance payout, passenger liability claims and other third party and ground damages of around 10–20 million US Dollars.This will also include damages to the medical college, on whose residents' doctors hostel the flight crashed. The Tata Group has committed to rebuilding the college.WHO BEARS THIS COST?The lead primary insurer for the Air India Boeing 787-8 Dreamliner that crashed is Tata AIG General Insurance, holding over 40 per cent of the share in the insurance policy. Other Indian insurers include New India Assurance, ICICI Lombard General Insurance, and several public sector insurers such as United India Insurance, Oriental Insurance Company, and National Insurance Company.The insurance policy covers both - the hull insurance and the liability insurance.Additionally, there also exists a crucial reinsurance structure in the event of such tragedies. Reinsurance in the aviation sector refers to the practice where primary insurers (those who directly insure airlines, aircraft manufacturers, airports, and other aviation-related entities) transfer a portion of their risk to other insurance companies, known as reinsurers. Simply put, it works as insurance for the insurance companies.advertisementIndian insurers typically retain less than 10% of the total risk in such large aviation policies. The vast majority - about 90–95 per cent - of the risk is ceded to global reinsurers through international reinsurance arrangements.In the present case, in accordance with the mandatory domestic reinsurance requirements, GIC Re - India's government-owned reinsurer holds only around 4-5 per cent of the reinsurance risk. Over 90 per cent of the liability is ceded to international reinsurers, primarily based in London, including AIG London. This means that of the total Rs 1,000- Rs 1,250 crore cost, GIC Re will bear a cost of about Rs 50 crore, while the remainder will have to be borne by the international reinsurers.IS THERE A FIXED TIMELINE FOR THE PAYMENTS?Under the Montreal Convention, airlines are required to settle all claims within two years. For this, the families of the victims must submit documentation such as death certificates, proof of kin etc to initiate the compensation claims. This, however, pertains only to the fixed liability of the airlines under the convention. In case there are any additional claims arising out of proven negligence or fault of the airline, the matter may have to be decided by a court of law.At least 265 people died in the deadly Ahmedabad-London AI 171 flight crash. The number of victims includes 241 people on board, with only one survivor. Must Watch
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