Kingfisher Airlines renews air insurance policy at lower premium

Kingfisher Airlines (KFA) has renewed its annual insurance policy without much hassle as premium rates fell by 37% for its insurance policy, mainly due to the abundant capacity in the reinsurance market. The policy is insured primarily with ICICI Lombard, which is the lead insurer, while Bajaj Allianz, SBI General and IFFCO TOKIO are part of the consortium.

According to a source close to the development, premium rates have come down 37% to 43 crore ($9.5 million) in 2011-12, lower from 60 crore ($15 million) paid in FY11.

"Premium rates have not gone up. This is despite the increase in the number of aircraft during the past one year, increase in landing and increase in passengers. There were not any major claims made by the aviation company," the source revealed.

The airline has coughed up 56 crore towards aviation insurance in FY10 compared with 52 crore in the previous fiscal. The policy covers the hull of the aircraft and liability to passengers. It includes coverage for any third party damage to property or people outside the aircraft.

Aviation policies are mainly reinsurance-driven since underwriting capacity is restricted to 150 crore. The number of accidents determines the premium rates for airlines. Kingfisher had made a claim of $17 million last year for the damage caused to its turboprop ATR that flew from Bhavnagar to Mumbai.

"The capacity available in the market is twice than is required. While there is an intent to increase rates, the capacity remains abundant," said Rajiv Kumaraswamy, head of underwriting at ICICI Lombard. Insurance premium rates had hardened in 2009 with three major accidents - Air France, Yemenia and Caspian Airlines. Prior to this, rates had shot up after 9/11.

The total premium in the airlines sector globally has touched $2 billion in 2010 against $1.6 billion a year ago.

State-run Air India is in the process of renewing its annual policy.