Premiums for Air India's annual insurance policy, coming for renewal on October 1, are likely to go up marginally to around $30 million (Rs 160 crore). This could be the highest ever premium outgo for the largest airline operator in the country. Last year, its premium outgo was $28 mn.
The marginal rise is in sync with the higher rates in the foreign market compared to last year and depreciation of the rupee. The fact that there were no major claims over the past two years and it is operating with about the same fleet size was part of the reason behind stable premium rates, sources said.
“With reinsurance rates firming up by five to 10 per cent around the world, the premium rates would go up marginally,” said reinsurance brokers directly associated with the deal. “Last year insurers had quoted higher rates on the account of operational inefficiencies of the national (government) carrier and some stringent conditions of the tender. However, this year there are no such issues,” added an insurance official.
During 2011-12 (October-September), the premium rates went up by 15-20 per cent. However, its overall premium outgo was lower, as its fleet came down to $9 billion from $9.5 bn. Air India paid a premium of $30 million during 2010-11 for insuring its fleet, valued at $9.5 billion at that time.
This was 15 per cent higher than the previous year.
Apart from an increase in the fleet size, the Mangalore air crash which killed 158 played a major role in the increase in premiums and the cover.
Once considered a prestigious client, Air India policy is losing appeal among insurers, largely on the account of stringent tender norms, which includes upfront payment in the case of claims and low margins, brokers said.
Unlike last year, when all major private players and a consortium of the public sector insurers participated for the AI tender, only three bids were made for this year. The present insurer, the New India-led public sector general insurer consortium, ICICI Lombard, and SBI General participated.
According to a New India Assurance Company official, the main condition that is acting against larger participation is that insurers must guarantee full-claim settlement even if any re-insurer fails to pay its share.
The broker said the policy would cover three types of risks — aviation hull, terrorism and war cover, and the deductibles insurance. Premiums are generally based on the claims, time-performance and fleet conditions.
Aviation hull or the basic cover includes the aircraft, engines, third-party liabilities, baggage and cargo, whereas a deductible is the amount of money the insured party must pay before the insurance company's own coverage plan begins. The terrorism and war policy covers emergency risk.
Usually 85-88 per cent of the risk in the case of aviation policies in India are reinsured with foreign reinsurance companies, as the capacity of Indian general insurance companies is limited.