Pvt cos get a pie of AI insurance

MUMBAI: Air India has managed to extract a 38.5% reduction in its fleet insurance bill by leveraging the intense competition between public sector and private consortiums. Cover for the airline’s fleet valued at $4.8 billion (about Rs 19,200 crore) has been split between public sector insurance companies led by New India Assurance and the private sector ICICI-Reliance-Bajaj-Tokio combine. This is the first time that private insurance companies have made inroads into the government aviation business.

Furious competition between the two groups has proved to be an advantage for Air India. The airline has 12 new aircraft under the policy. It will pay a premium of $9.5 million (Rs 38 crore) for the cover during the year. New India Assurance has managed to retain the majority of the coverage with over a 80% share.

The rest has gone to the consortium of private insurers led by ICICI Lombard General Insurance. Sources close to the developments in London said ICICI had a $1 million lower offer in the deductible insurance cover that was matched by New India. A tough fight was fought with New India Assurance emerging with the lowest number.

This is the fifth year that the Mumbai-based company has placed the Air India cover. But it is the first time that the private sector companies have been able to get their foot into the door, the sources said.

Aon Global was the broker for the New India consortium while HSBC- Willis combine was roped in by the private sector.The Air India insurance cover would increase substantially next year when the merger with domestic carrier Indian comes through.

The joint fleet size will be close to 90 planes. The airline has a good safety record that has been factored into the pricing, the sources said.

According to airline insurance newsletter by US-based insurance broker Aon, the average reduction this year has been 20%.

“The soft market conditions have continued into May, with the average -18% reduction in lead hull and liability premium well in line with the both the six and 12 month trends,” the report said. Interestingly, while the average hull and liability renewal rate has been down by -19% over the last 12 months, both fleet values and passenger numbers have grown.

Over capacity and low loss levels have generated falling premiums; coupled with rising exposures. This highlights the price rebalancing that appears to be taking place in the airline insurance market, the report added.

The broking house has forecast that that the soft market conditions will continue until September, which would ensure that there had been an entire renewal cycle with soft premium pricing.

There is also a possibility that the reductions will continue into the final quarter, given that there has not been a major claim on the airline insurance market for some time and there is a lot of capacity still available.