Aviation insurance to hit airlines in the pockets

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Venkatachari Jagannathan | 07 Sep, 2009
A flurry of plane crashes across the world this year will find its echo in the domestic aviation insurance premium rates in the form of a 25-40 percent hike.

The year 2009 will go down as a bad year for airlines with three major accidents - Air France, Yemenia and Caspian Airlines - killing around 550 people. There were several other minor incidents too.

"The Air France and Yemenia losses in June this year are likely to set the agenda for the airline insurance market for the rest of the year and potentially well into 2010. Estimates for Air France and Yemen Air loss have been put in the range of $700-800 million and $250-300 million respectively," Bhargav Dasgupta, managing director and CEO, ICICI Lombard General Insurance Company, told IANS.

According to him, the losses incurred by the global aviation insurance market this year excluding minor losses are estimated at $1.32 billion till June 2009, as against a premium income of $416 million.

"Nearly half of the airline placements so far globally have seen their hull and liability premium costs rise by more than 25 percent compared to the previous year. This pattern is likely to continue for the rest of the year. As airlines insurance in India follows global trends, we expect a price rise for Indian carriers as well," he added.

According to Dasgupta, the aviation premium rate is primarily driven by the global trends owing to the large values for the aircraft and liability covers for which international reinsurance capacity is required.

The global aviation premium and claims for 2007-08 are estimated at $1.6 billion and $1.4 billion respectively. Considering the acquisition and operating costs, the insurers have been incurring losses resulting in hardening of premium rates from the last quarter of 2008, he added.

"Typically the premium rate would vary from 0.5 percent to 2.5 percent of the aircraft value. The law of large numbers does not apply to this segment as each aircraft is of high value. An Airbus or Boeing would cost anything from Rs.200 crore to Rs.1,000 crore. Even minor damage - technically called attrition loss - would amount to Rs.100 crore," T.A. Ramalingam, head of underwriting at Bajaj Allianz General Insurance Company, told IANS.

According to Dasgupta, during 2008-09 Indian non-life insurers booked a premium of Rs.343 crore under the aviation portfolio, up from Rs.304 crore booked the previous year.

"About Rs.200 crore (previous year about Rs 175 crore) pertains to aircraft while the balance pertains to general aviation. Our market share last fiscal was 16 percent with a premium income of Rs.55 crore as against 14 percent and Rs.41 crore in 2007-08."

Market leader New India earned a premium of around Rs.110 crore under this portfolio in FY08. If one takes into account the inward reinsurance premium, the company's market share will be more than 50 percent, a company official said.

Meanwhile, the aviation insurance segment in India is set to boom with around 450 aircraft valued around Rs.49,200 crore to be added to existing fleet over the next five years, he added.

"With various airlines going for major expansion and new airlines starting operations, the aviation sector is growing at 15 percent per year and the growth is faster than any other country," the official said, speaking on condition of anonymity.

It is this potential that is attracting United India to focus in a major way on this segment. Another official said that the company has set up a core group to get a firm foothold in this segment.