Air India plane crash may trigger up to $150 mn in global insurance claims

Business Standard

12-06-2025

The crash of the Air India plane in Ahmedabad is expected to result in insurance claims of $130 million-150 million, according to industry insiders.
The majority of these claims will likely be borne by global reinsurers because aviation policies are typically structured with primary insurers transferring a significant portion of the risk through reinsurance arrangements.
About 10 per cent of the claims are likely to come on the books of Indian insurers and reinsurers, according to industry observers.
The claims will include three kinds of liabilities: Damage to the aircraft; loss of lives who were aboard the aircraft; including the crew members; and third-party liability because of loss of lives where the aircraft crashed; and cargo liability.
Industry insiders are estimating $80 million-100 million in claims for the aircraft damage following the crash, and over $50 million in claims for the deaths of the passengers and crew members, and the deaths of non-travellers owing to the crash -- part of third-party liabilities.
Air India had insured its fleet for $20 billion with Indian insurers including TATA AIG General Insurance, ICICI Lombard General Insurance, New India Assurance, and the other state-owned general insurance companies. TATA AIG has provided coverage for 30-40 per cent of the risk and is the lead insurer among the primary insurers.
These insurers, in turn, have reinsured most of the risk with reinsurers, including state-owned GIC Re, America-based AIG, and AXA XL.
'Airline fleet policies are reinsurance-driven. In the case of Air India a significant amount will be with the reinsurers. Aviation policies are agreed-value policies and the agreed value of the aircraft is $80 million. However, putting an estimate on liabilities is tough because the nationalities of the passengers play a vital role in understanding what kind of liability we are looking at. Also, there is some damage on the ground, so there will also be some third-party liability. In such an event, aviation reinsurers are usually quick to respond. Their appointed surveyors and solicitors will swing into action, approach the families of the deceased, and try to settle the claims as quickly as possible. But it is a long-drawn process. This event is likely to have an impact on aviation insurance rates,' said an insurance-industry insider.
According to another senior insurance executive, aircraft are comprehensively insured, with the primary insurance subsequently reinsured by global firms. Insurance coverage generally includes damage to the aircraft, the deaths and injuries, as well as damage to cargo and personal belongings.
'In such cases (crashes), Indian insurance companies are usually not significantly burdened financially because most of the risk is transferred to reinsurers. Following an incident, reinsurers often take the lead in advising Indian insurers on the appropriate course of action. However, this incident is likely to affect aviation insurance premiums, with reinsurers potentially increasing rates based on their loss experience,' the person said.
While there would not be much of an impact on the profit and loss accounts of Indian insurers, they will certainly take a hit on solvency, with TATA AIG taking the biggest hit since it was the lead primary insurer.
'The solvency of insurers will be affected with a major impact on the lead insurer. However, most insurers involved have strong solvency and are not a major concern,' said an insurance executive.
The Air India place was a Boeing 787-8 Dreamliner, one of the most modern passenger aircraft in service. Reports suggest it was the first crash for the Dreamliner, which began commercial flights in 2011.
'The loss will be fully paid because it is a total loss with no salvage value. This means the entire $80 million is payable to cover the aircraft. However, additional claims for passenger liabilities and third-party liabilities make the situation complex. The Indian lead insurer will head the claim process, but only about 10 per cent of the payout will come from Indian insurers, with the balance placed with reinsurers. The liability portion, which could reach an estimated $50 million, will also be covered, but it will go through a legal process, taking time to resolve. This brings the total potential loss to around $130 million,' said Sourav Biswas, business head (aviation insurance), Alliance Insurance Brokers.
Experts say this incident is likely to harden reinsurance rates for aviation policies, depending on the losses the reinsurers make. 'This event will also harden rates for the aviation insurance,' Biswas said.
Narendra Bharindwal, president, Insurance Brokers Association of India, said:
'In cases involving large commercial aircraft such as the Boeing 787, insurance coverage is substantial and structured globally. Aviation-insurance programmes for major airlines such as Air India are arranged on a fleet basis and reinsured across international markets like London and New York. No single insurer bears the entire risk. Coverage is widely distributed among global reinsurers, with shares as small as 1.5-2 per cent and a lead reinsurer typically taking 10-15 per cent.'
'The financial impact of such incidents is shared globally across this network. While immediate premium adjustments are unlikely, the cumulative effect of multiple aviation incidents worldwide—including this one—will influence renewal terms and premiums for the sector in the next underwriting cycle. This incident, along with others in recent months, will likely result in a hardening of the aviation insurance market, not just for the airline involved but across the entire aviation sector,' he said.