Financial News

  • 29 July 2014, 6:34

Crashes Push Up Airline Insurance Costs

The global airline industry faces the prospect of huge insurance premium increases, following a spate of crashes.

The warning comes as the sector is forecast to see annual losses hit more than £1.2bn - the most expensive year since the 9/11 attacks in 2001.

The insurance industry has warned of huge premium increases on aircraft cover, as war is now seen as a threat to commercial flight paths.

On July 17, Malaysia Airlines flight MH17 was downed by an apparent missile attack over eastern Ukraine, killing almost 300 people.

Recent conflicts in the Middle East and parts of Africa have increasingly turned underwriters' attention to "war" insurance policies.

On July 24, an Air Algerie flight AH5017 crashed in a remote region of Mali, close to the border with Burkina Faso, with the loss of 116 lives.

And the day before, a TransAsia Airways flight in Taiwan crashed in bad weather, killing 48 passengers.

Mystery still surrounds the disappearance in March of Malaysia Airlines MH370, which is believed to have crashed in the Indian Ocean with 239 people on board.

Airlines face sudden policy changes in relation to hostile attacks and could include cover cancellations with just days' notice.

The Financial Times said that some companies are demanding exact flight path details and may reconsider cover for flights over areas of conflict.

David Learmount, of Flightglobal, told Sky News that consumers are not likely to be hit by insurance increases, but said they may be affected by changing flight paths and fuel prices.

He said: "If airlines are now flying around Ukraine for example, instead of across the country, the plane will use more fuel and that might impact the cost of flights."

Although some airlines were flying over Ukraine prior to the loss of MH17, carriers are now avoiding the country.

Similar concerns have hit other regions. Emirates Airlines has stopped flying over Iraq and Mr Learmount said "it will lengthen journey time and therefore increase fuel consumption".

As the aviation industry is hit with insurance hikes, Malaysia Airlines is expected to see the highest increases, amid reports that it may seek to rebrand itself after losing the two aircraft this year.

Lloyd's of London, the world's oldest insurance market, said it expects to see a bill running into hundreds of millions of pounds this year due to recent airline disasters.

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