Airline insurance rates on the rise

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Written by Linda Hohnholz

The cost of insurance for airlines is on the rise with international insurers charging a hefty premium for underwriting both war and hull insurances due to a spate of air accidents across the world in

The cost of insurance for airlines is on the rise with international insurers charging a hefty premium for underwriting both war and hull insurances due to a spate of air accidents across the world in the recent months.

In July alone, there were three major crashes. Malaysian Airlines flight MH17 was shot down over Ukraine, killing some 300 people. A TransAsia Airways flight crashed in Taiwan and an Air Algerie flight crashed in Mali on two consecutive days. Earlier, in March Malaysian Airlines’ MH370 went missing with some 240 people on board.

“With these new accidents, the reinsurers are charging a hefty premium,” an airline executive in the know said. “They are charging up to 250 per cent increase for underwriting war insurance and up to 50 per cent more for underwriting hull insurance.” This is the first time since 26/11 that the reinsurers are charging a hefty premium. “The premiums had shot up after the 26/11 attacks, but were stabilising after that,” the executive said.

There are three types of insurance an airline opts for, war risks coverage, which protects against losses due to war terrorism, hijacking and so on; hull insurance, covering damages to the aircraft itself; and personal cover insurance, covering liability for death or injury to passengers and third parties.

While the cost of personal cover insurance is still under control, war and hull insurance costs have shot up. Besides air crashes, in the past one year there have been incidents of separatist militants attacking airports in Tripoli in Libya and Karachi in Pakistan.

“With these attacks, the London insurance market has already paid about $2 billion as compensation over earnings of $1.4 billion last year,” said the airline executive quoted earlier.

At a time when most airlines are making losses, industry executives said higher insurance costs might offset the benefits of falling fuel prices. “Insurance cost is not a major component of our costs, but it will surely dent the benefits we were looking at with falling crude prices,” said an airline executive.

Among the Indian airlines, Air India had to pay about 20 per cent higher premium for insuring its fleet of 132 aircraft. The carrier claimed that it paid less than most other airlines due to improvement in various safety parameters. “One of the key reasons for us getting the premium at a minimal cost is because we had cleared the enhanced IATA operational safety audit with zero findings,” said a senior Air India executive involved in the negotiations.

The executive said reinsurers primarily look at an airline’s safety record and certificates and past records when they come for negotiations and an enhanced IOSA certificate helped Air India get the “best deal”.

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Linda Hohnholz

Editor in chief for eTurboNews based in the eTN HQ.

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