MH370: Echoes of 9/11 haunt insurance industry as Australia joins search for plane

MH370: Echoes of 9/11 haunt insurance industry as Australia joins search for plane

MH370: Echoes of 9/11 haunt insurance industry as Australia joins search for plane An Australian aviation law and insurance expert believes the mere suggestion of terrorism as the cause of Malaysian Air Flight 370’s disappearance 12 days ago reinvigorates memories of the post-9/11 fallout in the aviation insurance industry.

This comes as Australian Prime Minister Tony Abbott yesterday said the Australian Maritime Safety Authority (AMSA) had “new and credible information” based on satellite imagery of objects in the southern Indian Ocean related to the missing Malaysia Airlines flight.

A statement issued by the AMSA at 11pm AEDT yesterday said that four aircrafts from Australia, the US and New Zealand were used yesterday to search the ocean for the plane.  A merchant ship arrived on Thursday and a second one is said to be on route.

The search came to an end when night fell. The search will resume today.

The total insurance loss of Malaysia Airlines flight is between US$500m and $600m. Allianz is the lead insurer.

Shannon O’Hara, senior associate at Brisbane-based law firm Carter Newell, has claimed that the repercussions of a potentially catastrophic loss in the case of MH370 will be felt throughout the aviation industry, particularly by insurers of airlines.

“The aviation insurance market differs from most other markets because the potential exposure of airlines in the event of a catastrophic loss is significant,” O’Hara told Australasian Lawyer when approached for comment on the unfolding crisis.
Though the risks associated with catastrophic events are typically spread widely, keeping the exposures of any given insurer within acceptable limits, impacts are felt broadly by insurers.

While conventional aircraft losses can typically be gauged via the effects on insurance premiums, more significant accidents - and particularly the terrorist attacks on September 11, 2001 - can invoke wider impacts on insurer policies and their airline clients.

“The September 11 terrorist attacks took the issue of insurance for catastrophic aviation events to the next level,” O’Hara said.  

At the time, premiums for airline companies increased significantly, and a blanket global approach was taken by insurers to exclude risks associated with terrorist attacks that include hijacking. O'Hara is not expecting the MH370 incident to result in such measures.

"Other than by reference to increased premium and resultant profit impact issues among airlines and insurers, the disappearance of MH370 is unlikely to affect aviation insurance policies, and the endorsements attaching thereto, in the same way as the events of September 11," O'Hara explained. 

“Of course, until some certainty around MH370 is achieved, it is impossible to fully ascertain the flow on effect to the industry, particularly given MH370 may itself throw a new unexpected challenge."

The MH370 rescue efforts, which have been plagued by allegations of ineptitude on the part of Malaysia's Department of Civil Aviation, which is coordinating the operation, may also raise questions internationally as the disaster unfolds.

“In the longer term and within a global context, the international community may turn to consider matters such as the adequacy of the MH370 emergency response together with the parties compliance with the guidelines set by ICAO [International Civil Aviation Authority], Annex 13 to the Convention on International Air Transportation,” O’Hara said.

ICAO's Annex 13 deals with issues relevant to the disappearance, including incident reporting, data systems and information exchange.
 
Airline customers may also be affected by the fallout as emergency security measures are put in place.
"We anticipate heightened security processes - both in an airport and airline context - will have already been put in place at least in the short term," O'Hara said.
"In this regard, it is worth noting the security screening processes in place post-September 11, 2001 are of course, rigorous, so the degree to which the travelling public might readily observe any heightened security processes is somewhat questionable," she added.