Aviation insurance premiums may see up to 10% spike post Air India crash

Following the AI-171 crash, global reinsurers may raise aviation rates, with insurers expecting 5-10 per cent premium hikes in FY27 amid mounting claims

Aviation insurance premiums in FY27 in India could go up anywhere between 5 – 10 per cent post a bunch of accidents, particularly the horrific Air India AI-171 crash in Ahmedabad, which could result in claims of up to $150 million for the insurers and reinsurers, said industry insiders.

 

Aviation insurance is largely driven by reinsurance, mainly led by London-based reinsurance companies, pricing risk from a global portfolio perspective. Several aviation incidents in the Asia-Pacific regions coupled with the Air India plane crash is likely to change the risk perception of the reinsurers for the region and might result in revision of premiums.

 

“If there is a hardening in the reinsurance market, it will lead to automatic hardening of rates in the domestic insurance market as well. The Air India crash is definitely more highlighted and it's a big one. It is not viewed in isolation, there also have been few helicopter crashes in the last 6-7 months. These might result in a 5-10 per cent rise in insurance premiums for major airliners. Overall, Indian insurers are under a lot of pressure in terms of premium versus claims,” said Sourav Biswas, business head, Aviation Insurance at Alliance Insurance Brokers. 

 

Aviation insurance coverage includes aircraft hull all risk cover, spares all risk cover, passengers and crew liability, third party liability coverage, coverage for cargo and also coverage against war risks.

 

Experts said that if there is any hardening of reinsurance rates, it will be on the aircraft hull rates irrespective of the manufacturer. A recent ruling of the high court in London had asked the reinsurers to compensate the aircraft leasing companies for losses over $1 billion caused by jets stranded in Russia post its invasion of Ukraine coupled with other aviation losses.

 

Meanwhile, according to sources, IndiGo is in talks with insurers and reinsurers to insure their fleet of 437 aircrafts consisting of narrow body - Airbus A320 family. The insurance cover of the airline is expected to be around $20 billion with an annual premium of around $15-17 million. IndiGo declined to comment to a mail seeking response on the same. The airline has to renew its contract by the end of July at a time of rising geopolitical uncertainty.

 

Industry insiders suggested that the recent crash could have a bearing on the premium that IndiGo shells out to insure its fleet. 

 

The insurance industry is likely to estimate the loss on Air India AI-171 Boeing 787 Dreamliner at around $80 - $100 million for aircraft damage, and over $50 million for liability, which cover deaths of passengers, crew, as well third-party liability.

 

Hitesh Girotra, vice-president - Aviation & Specialty Lines, Prudent Insurance Brokers said, “Incidents like these certainly put pressure on the pricing, yet pricing of insurance premium depends on many factors, including claims. Global underwriters typically look at a 5-to-10-year track record of an operator while pricing premiums. If there is a history for an operator having frequent losses, you will definitely see an increment in the premium. Insurers will also consider the rapidly growing aviation market in India before arriving at the premium change.”