Insurance premium rates will rise for airlines after a series of tragic events is expected to make this year the most expensive year for the industry since the September 11 attacks.
The disappearance of Malaysia Airlines MH370, the shooting down of its flight MH17, the recent TransAsia Airways and Air Algerie plane crashes and attacks on airports in Pakistan and Libya will likely lead to annual insurance industry losses of more than US$2 billion, according to media reports.
“For a number of years, abundant capacity has placed considerable pressure on pricing, as well as terms and conditions, across all aviation lines. At the beginning of 2014 rates were significantly below peak levels,” said a report by the credit rating agency AM Best this month. “Consecutive large losses this year … should now halt the decline in aviation rates. However, increases will be constrained by the high level of capacity serving this market.”
Leading insurers including Allianz, which counts Malaysia Airlines among its clients, declined to comment on any changes to the market pricing structure after these events. The Lloyd’s Market Association also declined to comment.
“If as a result of increasing geo-political tensions in the Middle East, Ukraine and through parts of Africa the situation was to substantially worsen we would need to anticipate premiums rising sharply for 2015. Of necessity airlines would be forced to passed any rise in costs to passengers,” said Howard Wheeldon, an independent aerospace analyst.
The risks of flying over combat zones has taken centre stage following the deaths of 298 people on flight MH17 after it was apparently shot down by a missile above rebel-held territory in eastern Ukraine.
“For the niche aviation war risk market, losses this year will considerably outweigh premiums written and insurers are expected to react with substantial rate increases,” said AM Best.
The New York Times reported that claims on just one type of insurance category, “war risk”, have exceeded US$600 million in the past five months and are expected to increase. War risk insurance covers aircraft damage from hostile attacks.
Aviation war insurance brings in annual premiums of about $60m.
The Financial Times wrote that some underwriters were asking for three-fold increases on war policies.
Allianz is the lead hull and liability reinsurer on the Malaysia Airlines jet. The aircraft itself was valued at about $97m.
“As the leading reinsurer of Malaysia Airlines for aviation hull and liability coverage, Allianz Global Corporate & Specialty stands by to support our client as fully and quickly as possible,” Jacqueline Maher, a spokeswoman for the company, said earlier this month.
Malaysia Airlines has an overall liability policy with a cap of $2.25bn for each crash, according to the New York Times.
Concern has been growing that escalating violence in Iraq could make it unsafe for commercial aircraft flying overhead.
Carriers including Emirates Airline and Air France-KLM have stopped flying over the country.
However, Etihad Airways and Australia’s Qantas said they would continue to fly through Iraqi airspace for now.
Airlines have called on authorities to take more responsibility for providing reliable information on flying over conflict zones.
The United Nations civil aviation agency was set to hold a broad international meeting to discuss airline safety yesterday
selgazzar@thenational.ae
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