The recent crash of an Air India flight in Ahmedabad is expected to result in one of the costliest aviation insurance claims in Indian history, with estimated claims exceeding $120 million. The insured value of the aircraft, known as the hull loss, is expected to be around $80 million, while passenger liability compensation could add an additional $30-50 million. However, the total liability payout could be significantly higher, potentially exceeding $100 million, due to the presence of several high-net-worth individuals on board.
The aircraft was covered under a global reinsurance program, with most of the risk ceded to international reinsurers. Indian insurers, including Tata AIG, New India Assurance, and National Insurance, retained less than 10% of the risk. State-owned reinsurer GIC Re has a 5% stake in the reinsurance treaty and will see a claim of around $4.1 million.
The incident is expected to trigger claims under both the hull and liability sections of the insurance policy, due to the total loss of the aircraft and the fatalities. This will likely affect multiple reinsurers, as airline fleet policies are often placed on a facultative basis involving several participants. According to Ramaswamy Narayanan, CMD of GIC Re, “Today’s incident… is expected to trigger claims under both the hull and liability sections due to the total loss of the aircraft and the fatalities.”
Historically, Indian carriers have witnessed few major accidents, with the most notable being the 2010 crash of a Boeing 737 in Mangalore, which resulted in insurance payouts of around $60-70 million. The current incident is expected to surpass this amount, making it one of the biggest-ever claims involving an Indian airline. Sourav Biswas, aviation business head at Alliance Insurance Brokers, noted that “This would be one of the biggest-ever claims involving an Indian airline.”
The crash is also likely to harden reinsurance rates across the board, as aviation insurance is a global pool and any large loss in one part of the world impacts pricing everywhere. According to a senior reinsurance executive, “This will affect renewals next year… Aviation rates may go up globally, and more so in markets like India where loss ratios have otherwise been benign.”
Tata AIG, the lead insurer for Air India, is closely monitoring the situation, with a spokesperson stating that the company is working to assess the impact of the incident. Air India’s liability limit is up to $1.5 billion, and there could be around $250,000 per passenger potential liability for bodily injury or bodily injury leading to death. The incident is a significant reminder of the importance of aviation insurance and the potential risks involved in air travel.