A series of air crashes have led to hardening of aviation insurance rates globally
Airlines could face a 10-15 percent increase in insurance premiums following the Ethiopian Airlines crash on March 10 that led to the loss of 157 lives.
While Indian insurance companies are said to have a 'minimal exposure', frequent accidents have led to tighter pricing for aviation insurance.
Globally, in regions where the crashes happened, premiums have gone up by 20-30 percent in 2019.
"There was the Lion Air crash and now the Ethiopian Airlines crash. This is a worrying trend since these are new aircraft and this will impact premiums for airlines this year," said a senior official of a large insurance broking firm.
Aviation insurance market
Aviation insurance follows a consortium route where there is a lead insurer and the rest of the insurers. This is because of the size of the risks and incidence of claims during a crash.
In the past 4-5 years, there have been multiple cases of airline accidents including the Malaysian Airlines flight 370 going missing (227 fatalities), Cubana Flight 972 crash (112 deaths), Malaysian Airlines Flight 17 crash (298 deaths), Lion Air crash (189 deaths) among others.
Montreal Convention for air crashes
Most of the countries follow the Montreal Convention of 1999, which covers norms with respect to carriage of passengers by air. Article 50 of the Montreal Convention says states should make sure their carriers have adequate insurance covering their liability under this convention.
A carrier may be required by the state in which it operates to furnish evidence that it maintains adequate insurance covering its liability under this Convention. More than 100 countries are party to this convention including China, India and Malaysia.
With respect to the air-carrier liability, the Montreal Convention has established a 'two-tier' system of liability. As per these rules, a carrier has a minimum liability for damages not exceeding 113,100 Special Drawing Rights or SDRs. One SDR was equal to $1.41 or Rs 97 (for India) in the first week of March. This varies with time and region. The insurance premium for each aircraft depends on its SDR, and also on the type of the plane, among other factors.
This is over and above the compensation that families of those who have lost lives, can claim.
