Air India Incident Expected to Activate Insurance Claims Exceeding Rs 1,000 Crore
The recent crash of an Air India Boeing 787 Dreamliner in Ahmedabad has triggered what could become the most expensive aviation insurance claim in India’s history, with potential liabilities exceeding Rs 1,000 crore. This staggering amount surpasses the total annual premium for the entire aviation sector in the country. The tragic incident reportedly resulted in the loss of over 240 lives and caused significant collateral damage on the ground, raising concerns about extensive liability payouts.
Insurance Coverage and Potential Claims
Air India has a comprehensive aviation insurance program valued at $20 billion, which includes both hull and liability coverage. The risk is underwritten by Tata AIG, along with other domestic insurers. A global consortium, led by AIG, manages the reinsurance structure, which also involves public sector entities like New India Assurance and GIC Re. Following the crash, shares of these insurers fell by 4% and 3%, respectively, reflecting market concerns over the financial implications of the incident.
Amit Agarwal, CEO and Managing Director at Howden India, explained that the aircraft’s damage would be covered under the aviation hull all-risk section, which insures the current valuation of the aircraft, including spare parts and equipment. The Dreamliner involved, registered as VT-ABN, was valued at approximately $115 million in 2021. Regardless of whether the damage is partial or total, the loss will be compensated based on the value declared by Air India.
Liability Claims and Passenger Compensation
While the hull loss is significant, the liability claims are expected to be even larger. Agarwal noted that the liability section is likely to be the most substantial component of the overall loss, potentially amounting to millions of dollars. This includes compensation for passenger fatalities and third-party claims arising from the crash site. Under the Montreal Convention of 1999, compensation for passengers is calculated in Special Drawing Rights (SDRs), currently valued at approximately $171,000 per passenger.
Hitesh Girotra from Prudent Insurance Brokers estimated the hull value at around $75-80 million. He emphasized that the operator’s liability will have multiple facets, including the nationality of the passengers, which will influence the minimum liability under the Montreal Convention. Additionally, there are considerations for third-party property damage and potential civilian casualties resulting from the crash.
The Evolving Landscape of Aviation Insurance
The scale and complexity of this claim highlight the evolving nature of aviation insurance. Narendra Bharindwal, president of the Insurance Brokers Association of India, provided context by explaining that insurance coverage for large commercial aircraft, such as the Boeing 787, is substantial and structured on a global scale. Hull values can range between $200 million and $300 million, while liability coverage for international routes often exceeds $500 million.
Air India’s aviation insurance program, like those of other major airlines, is reinsured across global markets, ensuring that no single insurer bears the entire risk. This diversified approach helps mitigate the financial impact of such catastrophic events, although the current incident poses unprecedented challenges for the industry.
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