The missing Malaysian jet: How it could affect insurance markets

Insurance payouts related to MH370 have already begun, but how may it affect rates in the future?



Allianz and its backing reinsurers have already begun making payments on claims related to missing Malaysian Airline flight MH370, the German insurer announced this week. As Malaysia Airlines’ lead insurer, Allianz expects to pay roughly $100 million for the aircraft and its 239 passengers under aviation hull and liability policies.

While official determinations on the cause of the flight’s diversion have not been made, the incident has already sparked discussion on terrorism and the potential impact for US insurance markets.

Robert Hartwig, president of the Insurance Information Institute, believes that while the event is certainly a touchstone for arguments on the value of aviation, liability and terrorism insurance, it unlikely to be reflected in industry rate increases.

“In the past 12 months, we’ve had two incidents involving Asian airlines—the other being the Asiana flight that stopped short on the runway and killed three people. However, the safety record in the US remains absolutely stellar,” Hartwig told Insurance Business.

“Aviation underwriters will take a look at the environment in light of this event, but whether it was influenced by terrorism or pilot error, these events are not entirely unexpected. The industry has the resources to pay the claims and, at this point, I don’t see radical changes to the aviation market in the offing.”

However, Hartwig did say the missing flight underlines the importance of a healthy terrorism risk market in the US, and may fuel the debate over the reauthorization of the Terrorism Risk Insurance Program.

“Even if it’s determined not to be terrorism, it’s eerily reminiscent to Americans of other aircrafts that were commandeered on 9/11,” he said. “Were it to be determined as an act of terrorism—along with the Boston Marathon bombing—it would once again attest to the fact that terrorism is alive and well and remains a threat to national security. Both events would be proof of the value of renewing TRIA.”

The Malaysian flight disappeared March 8 en route to Beijing. Malaysian authorities believe the Boeing 777 was deliberately diverted, and an international land and sea search is now underway, covering an area roughly the size of Australia in pursuit of the missing jet.

Coverage for the jet was placed by Willis, which has declined to comment on either the exact sum of the claims to be paid or how much of it will be footed by reinsurers.


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