The Hindu Business Line : Airline insurance market softens

Overview
Aviation sector has grown at 25% per annum; insurance market has grown only at 4.29%.
Insurance covers the aircraft hull and liabilities of the owner or operator.

Radhika Menon

Mumbai, Sept. 24 Airlines are enjoying large discounts in their insurance covers, as the aviation sector has recovered from the 9/11 shock and insurers are quoting aggressively low rates.

“Post 9/11, the rates had shot up and reinsurance rates had hardened. But over the past few years with no major losses reported, they have steadily come down,” said Mr T.A. Ramalingam, Head - Underwriting, Bajaj Allianz General Insurance.

Bajaj Allianz is co-insurer for Air India, Kingfisher Airlines, GoAir and Indigo among the scheduled airlines.

Moderate growth

With existing airlines expanding capacities and new players entering the fray, Indian aviation sector is growing at 25 per cent per year. The insurance market has, however, registered only a moderate growth of 4.29 per cent at Rs 417.29 crore in 2006-07, against Rs 400 crore in the previous year. Premium rates, which range from 0.5 per cent to 2.5 per cent of the aircraft value, are now at the lower end of the scale.

Insurers say the premium rate has fallen by almost 70 per cent in the last two years.

Mr M. Ramadoss, Chairman and Managing Director, Oriental Insurance said, “The premium rate has fallen 35 per cent each year (in the past two years). The overall portfolio has not seen losses, which is why the premium rates have been softening.”

Oriental Insurance is the lead insurer for Jet Airways and the policy comes up for renewal in October.

Kinds of risks

Aviation insurance covers the aircraft hull and liabilities of the owner or operator arising out of the operation of the aircraft.

“The premium charged vary according to the type of coverage, time period and extent of risk. As a practice, the rotating wing type of aircraft get charged higher premium rates than the fixed wing aircraft due to their large claims ratios worldwide,” elaborates Mr Kartik Jain, Head-Marketing, ICICI Lombard Insurance.

Analysts say airport infrastructure is not keeping pace with the aviation sector’s growth. The number of aircraft parked per sq km is high and so is the risk.

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