After Dreamliner Crash, Insurance Cost May Raise Airfare By 2-5%

The aviation insurance industry may consider raising the premium paid by airlines in the next cycle, following the crash of the Air India Boeing 787-8 Dreamliner in Ahmedabad.

A mix of expanding exposure to international routes, regulatory scrutiny, and high-value claims is expected to make the price of premium more expensive than it is now.

An expert told NDTV Profit if the aviation industry passes on the rising cost of insurance premium to consumers, airfare may see a rise of up to 2 to 5 per cent.

Air India and IndiGo have already renewed their policies for the year, said Sourav Biswas, business head - aviation insurance at Alliance Insurance Brokers. However, there could be a marked rise in premiums in the next billing cycle, Mr Biswas said.

The loss of Air India's Boeing 787-8 Dreamliner along with the deaths of 241 people who were on board and 10 at the doctors' hostel where the plane crashed comes at a time when a multi-billion-dollar court ruling in the UK ordered global reinsurers to compensate for aircraft seized by Russia due to geopolitical tension.

The timing of the UK court order and the crash, one of the deadliest aviation accidents in India, would add more strain on reinsurers who deal with hull insurance, which covers the aircraft itself, and liability insurance, which includes both passenger legal liability and third-party liability.

The sum total of all these factors and India being one of the fastest growing markets for the aviation industry will likely raise the premiums.

India's aviation industry's insurance premiums have been around Rs 1,000 crore historically, but it may get disrupted and the figure could change drastically.

Aviation insurance for big airlines such as Air India are given on a fleet basis and reinsured across global markets like London and New York, said Narendra Bharindwal, President, Insurance Brokers Association of India.

A single insurer does not take responsibility for the entire risk coverage; it is distributed among global reinsurers, with shares ranging from 1.5 per cent to 2 per cent. A lead reinsurer usually takes up to 15 per cent risk.

"This incident, along with others in recent months, will likely result in a hardening of the aviation insurance market, not just for the airline involved, but across the entire aviation sector," Mr Bharindwal said.

The Life Insurance Corporation of India (LIC) today announced immediate measures to ease the financial burden on the families of those who died in the plane crash. The insurer said that it would expedite claim settlements and offer concessions to support the affected families.