Airlines face steep insurance bill hikes in the wake of Malaysia Airline crashes earlier this year
Airlines are facing steep hikes in their insurance bills in the wake of the two Malaysia Airlines crashes earlier this year. The disasters are expected to end up costing insurers as much as £450million.
Broker JLT said rates covering war risks – often bought separately from standard insurance policies – have doubled in some cases.
Rates for hull and liability risks for airlines were up by 13 per cent on average in the year to October.
Wreckage: Flight MH17 in Ukraine
Lloyd’s of London specialist underwriters insuring war risks have paid out ten times as much for claims on the two crashes this year as they take in annual premiums and they want to recoup their losses.
Airlines are charged a total of about £830 million a year for insurance. Premiums have been falling in recent years amid improved safety levels.
In addition, investors have piled cash into insurers, provoking intense competition.
Nigel Weyman, chairman of the aerospace division at JLT, said: ‘It’s been a bad year with the two Malaysian losses. There’s been a change in the direction of the market.’
Most of the claims made by airlines are as a result of fairly routine bumps and scrapes which add up to a total of more than £630 million a year. If there are also major crashes the insurers can be left facing massive losses.
The small war market has borne the brunt of this year’s disasters. All 298 people on board a Malaysia Airlines plane were killed when it crashed in Ukraine, close to the Russian border, in July.
Western governments believe flight MH17, which had been travelling from Amsterdam to Kuala Lumpur, was likely to have been shot down by a missile fired by pro-Russian rebels.
War underwriters have also agreed to pick up some of the cost of flight MH370, which vanished without trace en route from Kuala Lumpur to Beijing in March with 239 people aboard. The cause of the airliner’s disappearance remains a mystery.
Weyman said the increases were actually relatively modest when compared to the much steeper rises expected by many.
He added: ‘On war rates some airlines got 100 per cent increases, but typically they have been anywhere between single digit and 40 per cent.
‘It depends where the airline is operating and what the quality of their security is. But there is still an amazingly strong appetite from insurers to take on these risks.’
Virgin Galactic’s SpaceShipTwo, which crashed last month on a test flight killing one of its pilots, was also covered in the aviation insurance market and added to this year’s losses.
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