Aviation insurers are seeking increases of up to 25% in premiums to cover the likely cost of ending limits on passenger-liability claims under the new International Air Transport Association (IATA) regime, which is now being put into effect by airlines around the world.
Limits set under the longstanding Warsaw Convention had capped claims for most carriers at around $75,000, but the limits are due to be removed under a new inter-carrier agreement signed by the bulk of IATA airline members in 1996.Under the new rules, passengers will be able to claim for full damages arising from death or personal injury.
Early estimates suggest that the full cost of ending the limits could run to an additional $100-300 million on world claims which have been averaging $400 million during the 1990s, according to Rod Dampier of the British Aviation Insurance Group.
Additional premiums of around 20-25% are being sought he said, speaking ahead of the annual meeting of The Aviation Insurance Offices' Association (AIOA),which represents the underwriting companies in the lead London market.
"It's not an exact science," says Dampier, adding that the impact will depend on where accidents occur. The new regime will have little impact on the US and Japanese markets, where Warsaw limits had already largely been abandoned, but the concern is that claims in Europe and Asia Pacific will now start to soar.
Much of the attention is focusing on Europe where the previous limits were strongly applied. One underwriter warns that comparisons with the motor industry suggest that aviation can now expect claims to rise by around 50-100%.
"We are looking at it as an increase in exposure and we will continue to monitor it from there," says AIOA chairman Barry Wilkes. He stresses that any extra charges should be shown as a separate "-additional premium not just floated into a general rate". The first test is likely to come after 1 April, when many of the airlines are expected to start likely to implement the new regime.
The move comes as insurance rates have again been in a downward spiral, however. New capacity poured into the market in the wake of a relatively mild year for claims in 1995, leading to sharpened competition and falling rates. Broking house Willis Corroon estimates that, in the last quarter of 1996, when the bulk of world airlines renew policies, liability rates were down by around 10-20% and aircraft-hull coverage by more. Wilkes calls the rate levels "unsustainable" but admits that there is no immediate evidence of a recovery.
At the same time, losses have been mounting after a series of 11 fatal Western-built jet-airliner accidents in 1996. Although the cost of hull damage was little changed at $477 million because of the age of the aircraft involved, initial Airclaims estimates put passenger-liability claims at around $800 million - their worst since the dramatic losses of 1985. Between one-third and one-half of that loss is likely to come just from the Trans World Airlines and ValuJet crashes in the USA.
Source: Flight International
