InvestorQ : How much of losses will the insurance companies have to compensate for the recent air crashes seen across India?
Anamika Sodhani made post

How much of losses will the insurance companies have to compensate for the recent air crashes seen across India?

Arya Nanda answered.
12 months ago

In recent times, a series of major and minor air-crash incidents have led to losses in aviation insurance to the tune of Rs 3,700 crore. This is an all-time high for the aviation sector insurers, which his normally done by the PSU insurers.

In the latest air crash when the flight skidded off the runway in Kozhikode airport, The Air Express flight made claims to the tune of $89 million. Now aviation officials are sceptical that this could lead to a spike in insurance premiums spiking costs further.

Aviation insurance covers the aircraft hull as well as liability for passenger injuries, environmental and third-party damage caused by aircraft accidents. In India, most of the insurance products are originated by the PSU insurers.

Normally, based on the size of the cover, the premiums range from 0.002 percent to 0.004 percent of the sum assured. However, with the spate claims in the recent past, most airline companies may have to face higher insurance costs and pass it on to the end customers.

In the recent past such damages were seen happening to Jet Airways and Spice Jet in separate incidents. Recently New India Assurance also picked up a huge bill of Rs.250 crore for the Sukhoi Su-30 fighter jet crash. Overall losses in such cases are to the tune of Rs.2500 crore.

The last major loss seen by aircraft companies was during the Chennai floods of 2015 when several aircraft and private jets belonging to companies were damaged resulting in insurance claims of Rs.400 crore plus.

Normally, aircraft insurance costs go up when the reinsurance premium goes up. Such costs are then passed on to the principal insurers who in turn pass it on to the customers leading to higher costs. Recently, rise in claims led to a spike in reinsurance premiums.

Airlines now have to content with such higher costs at a time when they are already bleeding with losses and are likely to struggle to recoup their market for a very long time. This comes as added cost to them.