Explained: How Airline Insurance Works—and Why It May Get Costlier After the Air India Crash

Following the unfortunate crash of Air India Flight AI171, questions are being raised about how airline insurance functions and why this disaster could push aviation premiums sharply higher. Here is a short explainer of the same. 

What airline insurance covers

Airline insurance consists of several kinds. The most prominent one is the Hull insurance, which covers damage to the aircraft itself. Since the crashed Air India plane is a total loss, the insurer may have to fork out $75–80 million for the aircraft alone.

Additionally, passenger liability insurance compensates families of those killed or injured. Under international and Indian laws, this can go upwards of Rs 1.8 crore ($220,000) per person. 

There is also a provision of third-party liability insurance if people or property on the ground are affected. In the case of Air India, this is applicable since the crash struck a residential area near a medical college. 
While there are certain policies that include war and terrorism coverage, this won't be prevalent in this case.

Also Read: Ahmedabad Plane Crash: Know Your Travel Insurance Rights and Compensation Details | Republic World

Who pays for these claims?

Indian insurers such as Tata AIG, New India Assurance, ICICI Lombard are the primary underwriters for Air India. However, because of the size of the potential payout—possibly $120–300 million (rough estimate)—most of the financial burden will be shared by global reinsurers in markets like London and Zurich. GIC Re, India’s state-owned reinsurer, typically handles only a small share.

Why will insurance costs go up after this?

According to aviation experts, this crash may trigger India’s biggest aviation insurance payout ever, likely exceeding the total aviation premiums collected in a year (around Rs 900 crore). That alone is enough to put a financial load on reinsurers, who will now reassess how they price Indian aviation risk.

As a result, premiums for airlines are expected to rise sharply during the next renewal cycle. It is widely believed that reinsurers may tighten conditions, demand more audits, and exclude more risks. It is also expected that Indian airline firms could face higher deductibles and stricter scrutiny of safety standards.

Will passengers be impacted?

Most likely, they will. Higher insurance costs typically get passed on to flyers through increased airway fares. So while insurance cushions airlines and passengers from financial ruin after disasters, the long-term cost could be borne by the passengers.