The much buffeted Indian aviation industry must now ready itself for another whammy — higher insurance costs.
The spate of aviation disasters this year is set to take a toll on the insurance premium outgo of domestic airlines. As international re-insurers jack up rates, premiums are expected to go up by 10-20 per cent when policies come up for renewal.
The increase in the premium outgo comes in a year when domestic carriers are expected to post losses of $1.3-1.4 billion (₹7,807-8,408 crore) in 2014-15, slightly lower than the $1.7-billion loss last fiscal, said aviation advisory firm Centre for Asia Pacific Aviation (CAPA).
Airlines typically pay 0.5-1 per cent of the total insurance cover as premium. Domestic carriers SpiceJet and IndiGo will renew their insurance policies in April and July, respectively. In September, national carrier Air India had to pay an additional 15 per cent premium to insure its aircraft fleet following the twin Malaysia Airlines tragedies. The airline renewed its insurance contract for $26.75 million.
Jet Airways, which renewed its premium in December, managed to keep its outgo flat by leveraging its tie-up with Etihad Airways which has arrangements with global reinsurers. G Srinivasan, Chairman and Managing Director of New India Assurance, said that apart from the AirAsia crash, the aviation market saw quite a few losses last year, especially due to attacks on airports in Pakistan and Libya, and this will have an impact on aviation reinsurance rates. New India Assurance is the country’s largest general insurer and the biggest in the domestic aviation market, where cover is provided to airlines by a consortium of domestic insurers, who take on a portion of the risk. Domestic insurers pass on most of the risk to global reinsurers.
The total claim outflow relating to the aviation sector for 2013-14 in the London reinsurance market was $21.1 billion. This is expected to increase for 2014-15 given the spate of incidents, a senior Air India official said. The official said that it is reasonable to expect a 20 per cent jump in premiums. General Insurance Corporation Re Chairman and Managing Director Ashok Kumar Roy expects a small increase in reinsurance rates for domestic airlines this year. GIC Re had a 3 per cent share of the claims made in the Malaysian Airlines MH370 incident.
With inputs from Adith Charlie