Air India Crash: How Aviation Insurance Works and Who Pays for It

The Air India Boeing 787 Dreamliner crash near Ahmedabad has brought attention to the complexities of aviation insurance. The incident, which occurred shortly after takeoff, will trigger various layers of insurance coverage, including hull damage, third-party liability, and additional clauses like Hull War Risk. 

This crash, which led to significant losses, will not only impact Air India but also have wider implications for the aviation insurance market, both in India and globally.

Hull All-Risk Coverage: The Core of Aviation Insurance

At the heart of aviation insurance lies the Hull All-Risk policy, which provides comprehensive coverage for physical damage to an aircraft, whether it is on the ground, in-flight, or in a collision. For large jets like the Boeing 787 Dreamliner, the insured values typically range between $211 million and $280 million.

Operator Liability and Passenger Claims Under the Montreal Convention

Beyond the hull coverage, the operator liability is a significant contributor to the overall insurance payout. Under the Montreal Convention of 1999, which is binding in India, airlines are required to provide compensation for death or injury to passengers. The compensation is calculated in Special Drawing Rights (SDRs), with each passenger entitled to a minimum of 128,821 SDRs (approximately $171,000).

Since the crash occurred in a residential area, Air India is also at risk of third-party claims for property damage and potential casualties. This can substantially increase the total cost of the incident.

Hull War Risk Coverage: Protection Against Terrorism and War

In addition to standard hull coverage, many airlines purchase Hull War Risk coverage, which protects against risks such as terrorism, sabotage, and war-like events. If investigations uncover any connections to these risks, the Hull War Risk policy may come into play, adding another layer of protection for the airline and its stakeholders.

Liability and Third-Party Coverage: The Largest Exposure

The liability section of the insurance policy is typically the most significant exposure in major aviation accidents. This part of the policy covers a range of liabilities, including death, injury, baggage losses, cargo damage, and property damage. 

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Reinsurance and Its Global Impact

The financial burden of an incident of this magnitude is shared across a global network of reinsurers. 

According to a news report, Insurance policies for airlines like Air India are multi-layered. While the hull coverage can range from $200 million to $300 million, third-party liability, particularly for international routes, can exceed $500 million. This risk is shared among dozens of reinsurers, each covering between 1.5% to 2% of the total risk. A lead reinsurer typically handles 10% to 15% of the exposure and coordinates the claims process.

The Aftermath: What Happens Next?

The total insurance payout for the Air India crash is expected to reach several hundred crores, although the primary burden will be borne by the global reinsurers. The impact of this event will also be felt in India’s aviation insurance market, which is valued at around ₹900 crore annually. 

Conclusion

The crash of Air India Flight AI171 has highlighted the complex layers of aviation insurance, from hull all-risk coverage to operator liability and third-party claims. While the immediate financial burden will be shared by a network of global reinsurers, the long-term impact of this incident will likely affect aviation insurance premiums and the overall insurance landscape in India. The industry will experience tighter underwriting and higher premiums, particularly in the wake of such significant accidents.

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