Introduction
The Indian Aviation Industry and The Aviation Insurance
The aviation industry consists of almost all aspects of air travel and the activities that help to facilitate it. It includes the entire airline industry, aircraft manufacturing, research companies, military aviation, flight operations, air traffic and much more.
India is the 7th largest civil aviation market in the world and is set to become 3rd largest by 2025. The industry has grown significantly over the last two decades and even after getting hit by the pandemic the industry promises to bounce back to its normal by 2023 end. There are seven scheduled airlines, four regional airlines and three cargo airlines in India with more than two dozen charter airlines owning small business jets in their fleet. These airlines have 722 aircrafts of all types- narrow and wide body.
Domestic and International passengers ferried in the last 6 years by Indian Airlines.
| Fiscal Year | Domestic | International |
| FY16 | 168.89 | 54.72 |
| FY17 | 205.68 | 59.29 |
| FY18 | 243.28 | 65.48 |
| FY19 | 275.22 | 69.48 |
| FY20 | 274.5 | 66.54 |
| FY21 | 105.25 | 10.13 |
Advantage for the sector:
Robust demand
Increasing investment
Opportunities in MRO – Maintenance, Repair and Operations
Policy Support
Aviation insurance
Aviation insurance is insurance coverage geared specifically to the operation of aircraft and the risks involved in aviation. Aviation insurance policies are distinctly different from those for other areas of transportation and tend to incorporate aviation terminology, as well as terminology, limits and clauses specific to aviation insurance.
Factors that determine aviation premiums are-
Type of aircraft
Value of the aircraft
No. of engines in the aircraft
Seating capacity of the aircraft
Parking slot of the aircraft
Use of the aircraft
Indian Insurers have come a long way in developing the market capacity for aviation insurance business and as India’s growth story continues, Insurers have kept pace with the growing demand from buyers in India. Today the Indian market is playing a key role in supporting not only buyers in India but also buyers in the sub-continent, including major support to the SAARC region.
On the Airline front, pricing continues to be driven by leading international markets especially in London, as Indian Insurers continue to off load major risks to international companies mainly in the European sub-continent, with insurance brokers playing a very important role in the entire process.
Types of Insurance policy offered-
Public liability insurance
Passengers’ liability
Hull all risk
Hull total loss only
In-flight insurance
Liability only
Aviation insurance policies are highly reinsurance driven.
Over the last 10 years GIC Re has emerged as one of the largest aviation reinsurers in the international market and is playing a key role in supporting Indian Insurers.
Challenges for the insurers
Aviation as an industry itself is a challenge let alone the insurance related to it. The industry is so volatile and unpredictable that having a farsightedness is nothing but being hypothetical. The market is cruel due to heavy taxes, tough competition and unprecedented events such as pandemic. When the industry suffers an economical hit, the insurance takes the collateral.
In India, not every general insurance company provides the aviation cover. Therefore, there is a lack of aviation pool. The claims are very rare and happens once in a while. Still some insurers fear to enter the segment where claims have a potential to bankrupt the entire company. And that is why the insurers who are active in the segment goes for the reinsurance cover.
General Aviation claims in 2008 exceeded ₹500 million and started 2009 on a bad note with claims in first five months exceeding ₹350 million. As against this, past 10 years average general aviation losses are hovering around ₹400 million. When we compare these claim figures against the total general aviation premium in India, one may come to a conclusion from the insurer’s perspective that general aviation is profitable over the last 10 years period. This may not be true for all insurers, especially considering the fact that 10 years average loss figure consists of two or three major losses in each year.
Claims figure of three biggest aviation insurer in India for the last 2 years
| Claims Incurred (in ₹ ‘000) | |||||||||
| BAGIC | HDFC ERGO | NEW INDIA | |||||||
| FY20 | FY21 | Change (%) | FY20 | FY21 | Change (%) | FY20 | FY21 | Change (%) | |
| Claims Paid Direct | 155704 | 222513 | 42.9 | 132705 | 51289 | -61.4 | 1022400 | 2600473 | 154.3 |
| Reinsurance ceded | 93454 | 99653 | 6.6 | 126177 | 51193 | -59.4 | 693139 | 2059193 | 197.1 |
| Net Claims Paid | 62250 | 122860 | 97.4 | 34313 | 15864 | -53.8 | 335166 | 553163 | 65.0 |
| Change in Claims outstanding | 90940 | 68768 | -24.4 | 88080 | 86863 | -1.4 | 121029 | 272217 | 124.9 |
| Total Claims | 153190 | 191628 | 25.1 | 24052 | 14647 | -39.1 | 456195 | 280945 | -38.4 |
Reinsurance claims- GIC Re and Munich Re Claims schedule
| Claims Incurred (₹ ‘000) | ||||||
| GIC Re | Munich Re | |||||
| FY20 | FY21 | change % | FY20 | FY21 | Change % | |
| Reinsurance Accepted | 10218839 | 9628835 | -5.8 | 20439 | 53564 | 162.1 |
| Net Claims Paid | 8158622 | 7580103 | -7.1 | 10232 | 27132 | 165.2 |
| Total Claims Incurred | 7872111 | 12016301 | 52.6 | 13007 | 56254 | 332.5 |
Conclusion
With excessive insurance market capacity and increased level of competition the gap between General Aviation premiums and claims is narrowing very fast and it remains to be seen which direction the market will move in the near future. The Airline market worldwide is witnessing rate hardening and airline buyers in India are expected to follow the international trend and treatment of their peers globally.
The unbridled growth in the aviation sector has come as a bonanza for the insurance sector. Thanks to capacity addition and the entry of new aviation players, a host of insurance companies are eyeing this growing market to offer insurance cover to new planes that are being brought to India.
India is expected to become 3rd largest civil aviation market by 2025. The insurers and reinsurers need to improve their strategies and diversity of products offerings.
Though India’s contribution to the total global insurance premium paid by airlines which stands at US $5.86 billion is miniscule, the growth in aviation premium pay-out is highest in China followed by India.The aviation sector is enlarging its scope and scalability and therefore, the entry of more numbers of insurers is a must to balance the growing market.
