AI insurance premium set to rise 15%

Air India would have to pay 15 per cent more for its annual insurance policy, set to come up for renewal on October 1. At Rs 160 crore, it would be the highest premium outgo for the largest airline operator in the country. Last year, the premium outgo was Rs 136 crore.

The premium would rise, despite ‘no claims’ during 2010-11 and the same fleet size. Insurers have quoted higher premiums on account of the carrier's operational inefficiencies and a few stringent conditions of the tender.

In 2010-11, the premiums rose 15 per cent. However, apart from an increase in the fleet size, the Mangalore air-crash, which killed 158 passengers and a crew member, played a major role in the increase in premiums and the cover.

Reinsurance brokers directly associated with the deal claim the current operational efficiencies affecting the day-to-day performances of the government carrier are to be blamed for the higher premiums. “Currently, Air India is not very efficient in terms of its management and operation of fleet, compared to some private aviation players. So, the prices quoted in the reinsurance market are higher,” said a reinsurance broker.

Air India, run by National Aviation Company of India Ltd, paid a premium of Rs 136 crore during 2010-11 for insuring its fleet, valued at $9.1 billion. ICICI Lombard General Insurance Co was the lead insurer, while the share of four government-owned general insurers was 40 per cent of the premium.

Once considered a prestigious client in its portfolio, the Air India policy is now losing appeal among insurers, largely on account of stringent tender norms, which include up-front payment in case of claims, and low margins.

Unlike last year, when all major private players and a consortium of public sector insurers participated in the Air India tender, only two bids were made this year. Current insurer, ICICI Lombard and a consortium public sector insurers led by New India have participated in the tender.

According to a New India Assurance Company official, the main condition acting against the participation of more players is insurers must guarantee full-claim settlement, even if any re-insurer fails to pay its share. “There is also a new prohibition: In the event of a major loss, an interim relief of at least 25 per cent of the hull claim has to be provided within seven days of the incident, irrespective whether or not the share from the re-insurance market has been received,” the official added.

The policy would cover three types of risks: Aviation hull, terror and war cover and the deductibles insurance, the broker said. Premiums are generally based on claims, time-performance and the conditions of the company.

Aviation hull, or the basic cover, includes aircraft, engines, third-party liabilities, baggage and cargo, while a deductible is the amount of money which the insured party must pay before the beginning of the insurance company's own coverage plan. Terror and war policies cover emergency risks like a terror strike.

Usually, 85-88 per cent of risks in cases of aviation policies in India are reinsured with foreign reinsurance companies, since the capacity of Indian general insurance companies is limited.