Sinai plane crash could have major market impact

Sinai plane crash could have major market impact | Insurance Business

Sinai plane crash could have major market impact
The Metrojet plane crash over the weekend, which tragically killed all 224 people on board, could have a major impact on a key insurance market.

Islamic State has claimed responsibility for the attack and, if this proves to be the case, the aviation war market could be affected.

Hamish Cotton, special counsel for Aussie law firm Holman Webb, told Insurance Business that the possible terrorist links to the crash could have a major impact on the market.

“There have been allegations that it could be a terrorist activity and if that’s the case then it is certainly going to have a big effect because the war market in recent times in London has taken a fairly large hit with, obviously, the Malaysian Airlines shot over the Ukraine but also 50% of the MH370 disaster was met by the war risk market,” Cotton said.

“That may fall, ultimately, on the all-risk insurers rather than the war insurers but that is still to be determined.

“There were also aircraft in Libya that were destroyed a couple of years ago now, so the war market has had unprecedented losses in the last couple of years and it is certainly going to affect that.”

Mokhtar Awad, an analyst with the Centre For American Progress, told the Guardian that the terrorist links seem unlikely.

“It doesn’t state how they were able to ‘down’ the plane allegedly,” Awad said.

“Even the most sophisticated of portable surface-to-air missiles cannot reach that high an altitude and are only a threat during periods of take-off or landing, but the plane had already climbed to its target altitude (from what we know thus far) when it began to likely experience technical failures. 

“The local affiliate, Wilayat Sinai, has been under some pressure over the past few months and may have jumped the gun on taking credit.”

Cotton noted that, if the crash was caused by mechanical fault or failure, the disaster would have less of an impact on the insurance industry thanks to its location.

“If it is not war market, if it is some sort of mechanical or other defect that has caused the accident I suspect that it won’t have a significant effect on the market,” Cotton continued.

“They are already reeling from MH370, there have been lots of disasters in the last few years.

“It was flying from Egypt to Russia, I’m not sure what conventions Egypt is signatory to but there are more than 220 people on board, I’m imagining that the damages in Russian and Egypt that would be payable are going to be significantly less than any Western country.

“I would be surprised if it had any significant impact on the all-risk market but I think it would on the war market in terms of premium.”

Reports have surfaced that the plane suffered a tail strike, where the tail of the plane hits the ground on landing, but Cotton stressed that this only has the potential to have an impact if it can be proven that repairs made by Airbus caused the crash.

“I’d be surprised if Airbus got that wrong to the extent were, what 15 years later, it is having an effect.

“I think the prospect of something coming out of that, whilst possible, is unlikely.”

Cotton believes that the cause of the crash could be found in a matter of days as the black box has already been found.

“Like when MH370 went missing, I doubt this will happen in this case but, there is a provision in the London insurance policies … which is a 50-50 settlement clause which is if the cause of the accident is not known and if both markets agree, the all-risk insurers and the war underwriter will both pay 50% of the loss until such time as it is known what happened.

“I suspect that won’t happen in this case.

“I suspect they’ll know what happened fairly quickly, they’ve got the black box. I would have thought within days we’d at least have an indication of what the likely cause is.”