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Aviation cover rates may increase

Aviation cover rates may increase
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First Published: Mon, May 24 2010. 12 08 AM IST
Updated: Mon, May 24 2010. 12 08 AM IST
Mumbai / New Delhi: Aviation insurance rates are likely to increase after an Air India (AI) Express flight crashed while landing at the Mangalore airport on Saturday, killing 158 people in the worst airline accident in India in a decade, according to insurance company executives.
The claims stemming from the Mangalore crash will have a “big impact” on insurance rates, said T.A. Ramalingam, head of underwriting at Bajaj Allianz General Insurance Co. Ltd, who also cited an increase in the number of smaller aviation-related claims in the past two years.
Insurance rates are going to “harden” when aviation insurance policies come up for renewal, said Ramalingam.
Another executive with an insurance firm who asked not to be identified as he is not authorized to speak with the media said insurance premiums for India’s airlines may rise by around 5% depending on the safety record of the carrier.
The premium local insurers charge an airline is based on international benchmarks such as reinsurance backup, which is calculated for a country based on the last 10 years’ record of the airlines and the premiums absorbed. “When a crash happens, this premium is raised so we can’t give discounts to the airlines to the extent we would have otherwise,” the executive said.
AI’s annual insurance contract will come up for renewal around October-November, he said. The current cover for the loss of the aircraft hull and passengers and crew would make for a $100 million (Rs470 crore) payout, the executive estimated.
Anup K. Srivastava, director (personnel) at AI, said the airline had insurance cover for both the hull and passengers according to the Contract of Carriage Act. “Air India will fulfil all terms and conditions as per the law and all claims would be settled,” he told Mint. AI, run by National Aviation Co. of India Ltd, sealed an insurance deal last year worth $8.9 billion for 153 planes for a premium of $24.23 million a year with a consortium led by Anil Ambani’s Reliance General Insurance Co. Ltd.
This deal was signed after controversy when Reliance General asked for an increase of around 20% on the premium on grounds that reinsurers were demanding more in the international market after an AI Boeing 747 caught fire on a Mumbai runway on 4 September 2009. The cover was an increase of nearly 35% from $6.39 billion in 2008-09.
Bajaj Allianz General has a 2.5% exposure to the insurance cover offered to the Boeing 737 plane of AI Express that crashed on Saturday. HDFC Ergo General Insurance Co. Ltd and Iffco-Tokio General Insurance Co. Ltd were other members of the consortium that offered insurance to AI. The lead reinsurers are Mitsui Sumitomo Insurance Co. Ltd and the Liberty Mutual Group. Premiums paid by other private carriers such as SpiceJet Ltd, Kingfisher Airlines Ltd and InterGlobe Aviation Pvt. Ltd, which runs IndiGo, are also likely to increase in the wake of the AI Express plane crash.
Aviation insurance premiums rose after an Air France Airbus A330 crashed into the Atlantic Ocean on 1 June 2009, killing all 216 passengers and 12 crew members. A series of minor incidents in India, including a dog spotted on the runway of Mumbai airport, the skidding of a Kingfisher Airlines aircraft while landing at an airport in Gujarat in November and an emergency landing by a GoAir flight at Delhi airport, meanwhile, sparked concern over aviation safety measures in India.
“The Air India aircraft is insured for $50 million. Air India should get the full cover as it lost a complete aircraft,” said M. Ramprasad, general manager at state-owned General Insurance Corp. of India.
The claims for Indian passengers who died in the crash would be more after India’s accession to the Montreal Convention.
India became the 91st country to have ratified the 1999 Montreal Convention on 1 May 2009. The Montreal Convention, designed by  the International Civil Aviation Organization, will ensure common carriage rules for liability in the event of death of a passenger or loss of baggage.
On 2 July 2009, civil aviation minister Praful Patel told Parliament that the amount of compensation for death or bodily injury for air passengers stands enhanced from $20,000 to $140,000; for damage to checked baggage from $20 to $1,400 per kg/passenger; and for damage to cargo from $20 to $24 per kg.
“As for compensation for delay in the carriage of baggage or cargo, the carrier is liable for damages limited up to $5,180 for each passenger,” he said.
pr.sanjai@livemint.com
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First Published: Mon, May 24 2010. 12 08 AM IST