Air India crash to inflate aviation insurance bills by 30% worldwide

The tragic crash of Air India Flight AI171 in Ahmedabad on June 12—the deadliest aviation disaster in over a decade—is sending shockwaves through the global insurance industry. The crash, which killed 241 passengers and crew along with 33 people on the ground, has triggered an estimated insurance claim of $475 million (₹3,940 crore), making it India’s most expensive aviation insurance payout to date.

The Boeing 787 Dreamliner jet was completely destroyed, marking the first-ever total loss of this aircraft model since its introduction in 2011. The massive claim includes approximately $125 million for the hull and engines and over $350 million in liability, covering compensation for loss of life and property damage on the ground under the Montreal Convention. Air India’s fleet is insured for around $20 billion, with annual premiums close to $30 million. However, more than 90 per cent of this financial burden will fall on global reinsurers, primarily based in London and Bermuda.

Experts say this high-profile loss is likely to “harden” the global aviation insurance market, pushing premiums sharply higher in the coming renewal cycle. Bloomberg reported that Indian brokers expect increases between 10 per cent and 30 per cent across key coverages such as hull, war-risk, and liability insurance, which is far steeper than hikes seen after previous crashes.

Global ripple effect

While the crash occurred in India, its financial aftershocks will be global. According to insurance experts and market insiders, the scale of the claim means international reinsurers will reprice risk across their entire aviation portfolios. That means airlines around the world are likely to see their premiums rise significantly in the months ahead.

“This catastrophe will contribute to global rate hardening,” Sajja Praveen Chowdary, director at Policybazaar for Business, told Bloomberg. “It’s not just an Indian issue. Premiums for hull, liability, and war-risk covers could jump as much as 30 per cent globally.”

Aviation insurance claims have already amounted to over $15 billion between 2019 and 2024, according to a report by Allianz SE.

With strong growth in air travel in Asia-Pacific and North American regions, total annual aviation premiums were projected to exceed $8 billion even before the Air India crash. Now, analysts warn the number could rise further, especially if more losses occur in the near future.

Brokers say insurers may introduce stricter underwriting standards, particularly for wide-body aircraft like the Boeing 787. The cost of coverage may also be passed on to passengers, as airlines operating on thin margins look to offset higher insurance expenses through higher fares or reduced services.

Claim complexities

The claim settlement process is expected to be long and layered, involving multiple insurers, reinsurers, and legal jurisdictions. While Indian insurers like Tata AIG and GIC Re are leading the local cover, they retain only 5-10 per cent of the risk.

The rest is reinsured abroad, and a portion of that is further distributed through retrocession, a mechanism by which reinsurers transfer risk to other parties, including global giants like Swiss Re, Munich Re, and various ILS funds.

Investigations into the crash are ongoing, with technical failure and potential liability still under scrutiny. Depending on the cause—accident, technical fault, or sabotage—different insurance policies (hull all-risk or war-risk) will be triggered.

Compensation for victims will follow international protocols, with each airline liable for up to 113,100 Special Drawing Rights (SDRs), equivalent to approximately ₹1.26 crore ($145,143) per victim.