Global reinsurers have increased the third-party liability cover to airlines to $750 million from $50 million. Airlines operating in India -- Air-India, Indian Airlines, Sahara Airlines, Jet Airways and Alliance Air -- are in the process of finalising their covers, said an insurance official.
The increase in cover is highly significant as it makes it clear that the perception of threat of war in the minds of international underwriters has decreased. They are now more confident of taking more capacity. The availability of adequate cover will ensure smooth operations of airlines as otherwise they would have been forced to ground some of the aircraft.
The cost of the $750 million cover works out to $2.85 per passenger. Earlier, international underwriters had capped the third-party liability at $50 million at a cost of $1.25 per passenger.
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Indian insurance companies were intimated of the change earlier in the week, and are now working on the proposals with the respective airlines. Most airlines are keen to take the maximum cover possible at the additional cost. "It is up to the individual airline how much cover it wishes to take," said the official.
The enhanced third-party liability cover has been offered in layers wherein the first layer of $50 million is offered at $1.25 per passenger. An additional $150 million less $50 million will cost the airline another $0.35 per passenger, and for cover up to $750 million less $150 million will be an additional $1.25 per passenger.
The perception of threat of war in the minds of international underwriters has decreased, and they are now more confident of taking more capacity. American International Group, Inc (AIG) has reportedly announced that its member companies have successfully completed the placement of aviation war risk and hijacking liability coverage totaling $1 billion per airline in excess of the $50 million aggregate provided by the primary aviation market.
Co-insurers in the AIG-led slip include: Ace, Axa, Chubb, Everest Re, GE Frankona, Glencoe, Hannover Re, Kemper, Liberty Mutual, St. Paul Group, Tokio Marine, TransReCo, Travelers, XL, and Zurich Re. Since the placement was announced by AIG, coverage has been put in place for several airlines outside the US, permitting those airlines to operate with uninterrupted service.
Indian insurance officials said the move to further increase third-party liability cover from $750 million to $1.5 billion is in the offing. It might be recalled that on September 21, post attacks on US on September 11, international underwriters had reduced the third-party coverage (which refers to damage caused to life and property, and does not include the aircraft) to $50 million at a surcharge of $1.25 per passenger. Prior to the attack, the coverage for third-party risk was made available upto $3 billion.
Aviation premium in India accounts for two per cent of the total premium collection that amounts to Rs 10,000 crore. Following the additional surcharge levied by the international underwriters, the premium is expected to rise 100 per cent, depending upon the extent to which individual airlines take coverage.