Air India Crash To Become India's Most Expensive Aviation Claim With A Potential Rs 2,400-Crore Demand

The crash of an Air India flight minutes after taking off from the Ahmedabad airport on Thursday is set to become India's most expensive aviation claim, with potential liabilities ranging between $211 million and $280 million. On the upper end, this will roughly translates to Rs 2,400 crore.

An airline's fleet insurance policy typically covers risks such as aircraft hulls, spare parts, and liabilities to passengers and third parties, said Ramaswamy Narayanan, chairman and managing director, GIC Re. The incident, involving a Boeing 787 Dreamliner aircraft, is expected to trigger claims under both the hull and liability sections due to the total loss of the aircraft and the fatalities.

This incident is likely to trigger multiple aspects of a typical aviation hull all-risk policy. Aircraft damage would be covered under the aviation hull all-risk section, which insures the current valuation of the aircraft, including spares and equipment,Amit Agarwal, chief executive officer and MD of Howden, India explained. For a Dreamliner, depending on its configuration, age, and other factors, this value can range between $211 million and $280 million, he estimated.

The aircraft involved (VT-ABN) was a 2013 model and was insured for approximately $115 million in 2021, based on available information. Whether the damage is partial or total, the loss would be covered based on the value declared by the airline, he said.

Airlines also typically purchase an add-on hull war risk cover, which is triggered if the loss results from a terrorist act or war-related event, Agarwal explained. In such cases, the loss would be covered under the hull war section.

The liability section—likely the most significant component of the loss in the Ahmedabad incident—could amount to millions of dollars. This section covers the airline's legal liability to passengers and third parties, including medical expenses, cargo, and baggage losses. The aircraft crashed into a civilian compound, which could result in substantial third-party claims.

Such losses generally affect multiple reinsurers, as airline fleet policies are often placed on a facultative basis involving several participants, Narayanan said. Since liability claims take time to quantify, it is currently difficult to assess the impact of this incident on future pricing."

While interim compensation may be announced by the airline, final compensation for passengers will be determined under the Montreal Convention of 1999, to which India became a signatory in 2009. Compensation is calculated using Special Drawing Rights, which stood at 128,821 SDRs (approximately $1.33 per SDR) as of October 2024. The actual payout will depend on the coverage purchased by Air India.

The Tata Group has announced a compensation of Rs 1 crore to the families of each person who lost their life in the tragic Air India plane crash in Ahmedabad on Thursday.

Industry Impact

This is a significant incident that could result in losses amounting to several hundred crores. The general aviation insurance premium market in India is estimated at around Rs 900 crore, Agarwal said.

"While most large losses are reinsured, this event is expected to influence aviation insurance rates going forward."

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