Aviation insurance to hit the sky
By Venkatachari Jagannathan | 14 Sep 2001
Chennai: The use of passenger planes as suicide bombers to blow up the World Trade Center in Manhattan has made insurance of airlines, prime industrial, commercial and real estate property an expensive proposition.
The first to suffer on this count are domestic airlines like Indian Airlines, Air-India, Sahara and Jet Airways because insurance of aircrafts is based on reinsurance premium rates.
Says Mr.K.N.Bhandari, chairman and managing director, New India Assurance Company Ltd, Mumbai, The premium rates will go up by 25 to 30 per cent. The probability of a mid term increase is also there.
According Mr. Bhandari, the Indian aviation insurance business is worth around $20 million. However hardly 2 per cent of the same is retained by the insurer, as the risk is huge and will have to be reinsured.
In the case of aircrafts, the insurance is divided into three parts namely, hull-damage to the craft,
damage to passengers and others and war risks. Of late the aviation insurance portfolio is a loss making one, what with the increasing accident and terrorist attacks.
The bombing of the Colombo airport by the LTTE, for instance, had resulted in immediate increase in the insurance premium of aircraft.
Even as the underwriters and re-insurers within and outside US are getting anxious in anticipation of huge damage claims, the four Indian government insurers have nothing to worry about mainly because they had virtually no exposure to the US-based risks.
The American insurance market is so huge and with our size we couldnt participate in their reinsurance programme actively, explains Mr. V. Jagannathan, chairman and managing director, United India Insurance Company Ltd, Chennai.
He pointed out that the US insurance industry would be particularly hard hit because only last year around 100 insurers had shut down, thereby reducing the number of players and the spreading of risks -the very basis on which the insurance industry operates.
