Airlines seek to defer payments of insurance premium3 min read . Updated: 24 Jun 2020, 06:04 AM IST
- Weak cash flows for airlines have pulled aviation insurance sales down after March
- The size of the Indian aviation insurance market is estimated to be around ₹5,000-6,000 crore
Airlines squeezed by continuing air travel curbs are seeking reduction, waiver and deferral of premium payments, and renewing cover for shorter durations,five top industry officials said.
On 25 May, India permitted limited resumption of air travel; however, a large number of aircraft remains grounded since the coronavirus lockdown began in March, depriving cash flows to pay salaries and buy insurance. Aviation insurance covers specific aircraft operations and possible risks in aviation.
According to a top official at a general insurer, airlines have demanded policy renewals and new policy purchases deferred by three months to a year; waiver on renewal of insurance policies and 30-40% lower premiums. The airlines claim that since flights are not fully operational, aircraft mostly grounded and most staff on furloughs, the risks are much lower, the official said on condition of anonymity.
“This time, since it is a wait-and-watch situation, airlines are demanding three-month and monthly insurance cover policies from general insurers so that the airlines are required to pay lower premium to keep their mandatory cover on and then go for longer term policies once the situation eases," the official cited above said. Typically, airlines buy policies of one- to two-year durations.
Weak cash flows for airlines have pulled aviation insurance sales down after March. According to Insurance Regulatory and Development Authority of India (Irdai), in April and May, general insurers’ premium from sales of new pure aviation policies stood at barely ₹100.09 crore, down 7.5% from ₹108.23 during these two months last year.
During fiscal 2019-20, the premium from sales of new pure aviation policies stood at ₹687.27 crore, which was 23.6% higher than ₹556.09 crore collected by the insurers in the previous fiscal.
As part of a nationwide lockdown, air travel was suspended by the government from 25 March to prevent transmission of covid-19. However, regardless of its flight operations, an airline needs to keep mandatory insurance cover.
The size of the Indian aviation insurance market is estimated to be around ₹5,000-6,000 crore.
Depending on the size of the cover, the premium ranges from 0.002% to 0.004% of the sum assured. Premiums are revised annually, depending on the claims in the previous period.
“Among various proposals, all major airlines have sought deferment of premium renewals and waivers and discounts on premium amounts from insurance companies since airlines are staring at losses with passenger demand expected to remain muted for some time," an airline executive said, requesting anonymity.
Operating just a fraction of their fleet as many people avoid air travel, airlines are revisiting contracts with vendors, including insurance contracts for aircraft, personnel, medical and equipment.
“Just like any other cost element, we are looking to better our terms with our insurers as well," an IndiGo spokesperson said. “This means both a reduction in rate and betterment of credit terms. We are leveraging our long standing relationships with our insurers and highlighting what makes IndiGo unique. We have an excellent track record across all our insurance products with a very low claim ratio which translates into lower premiums for us," the spokesperson said, adding the company is not looking at a short-term cover.
Spokespersons for SpiceJet, GoAir, AirAsia India and Vistara didn’t respond to emails and calls seeking comments.
According to IndiGo’s latest annual report, the airline spent ₹65.66 crore on aircraft and other insurances during FY19, up from ₹55.41 crore during FY18.
According to SpiceJet’s latest annual report, the airline spent ₹36.17 crore on aviation insurance during FY19, up from ₹22.74 crore during FY18. During FY19, the airline spent about ₹15.29 crore on other insurances, up from ₹4.81 crore during the previous year.
There are five types of aviation insurance—in-flight insurance, ground risk hull (non-motion) insurance, ground risk hull (motion) insurance, public liability insurance and passenger liability insurance.
The insurance provides coverage for hull losses as well as liability for passenger injuries, environmental and third-party damage caused by accidents. The insurance policies cover the risks the aircraft, the staff and the passengers are exposed to both during the flight and while it is on ground.
Accidental losses of parts of the aircraft, legal liability of passengers, losses due to war, deliberate risks due to workers are covered by insurance.