Post the crash of an Air India flight minutes after taking off on Thursday, the aviation and insurance industry is bracing for longer term repercussions by way of higher cost of insurance. The combination of growing international exposure, regulatory scrutiny, and high-value claims is likely to push premiums upward.
The crash, with a death toll of 241 currently, is expected to reshape how risks are underwritten and priced, especially for Indian operators. While the immediate impact on premiums may be muted given that major carriers like Air India and IndiGo have already renewed their policies for the year, there could be a notable upward revision in premiums in the next cycle, said Sourav Biswas, business head – aviation insurance at Alliance Insurance Brokers.
Apart from the Hull insurance, which covers the aircraft itself, and liability insurance, which includes both passenger legal liability and third-party liability, what adds further strain on reinsurers is the timing. The Air India loss comes on the heels of a multi-billion-dollar court ruling in the UK that forced global reinsurers to compensate for aircraft seized by the Russian government, a fallout from geopolitical tensions.
When viewed in totality, these incidents are pushing global reinsurance providers particularly those in London, who dominate this market to reassess the risk pricing for Indian aviation more critically, Biswas said.
If this trend continues and the rising cost of insurance is passed on to consumers, it could result in modest but visible airfare hikes anywhere between 2% and 5%, depending on the route and airline, according to Biswas. Despite India’s aviation insurance premiums being historically competitive hovering around Rs 1,000 crore for the industry, this figure may no longer remain stable.
Aviation insurance programs for major airlines such as Air India are arranged on a fleet basis and reinsured across international markets like London and New York, explained Narendra Bharindwal, President, Insurance Brokers Association of India. No single insurer bears the entire risk—coverage is widely distributed among global reinsurers, with shares as small as 1.5% to 2% and a lead reinsurer typically taking 10-15%. Still, while immediate premium adjustments are unlikely, the cumulative effect of multiple aviation incidents worldwide—including this one—will influence renewal terms and premiums for the sector in the next underwriting cycle. “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,” he said.
Still, considering India is a rapidly growing market, insurers will be mindful of that too, according to Prudent Insurance Brokers.
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