Germanwings pilot may have deliberately crashed the plane: What it means for insurance

Evidence emerged yesterday that the 28-year-old pilot wanted to “destroy the plane.” How will that complicate coverage?

Risk Management News

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Evidence emerged yesterday that the 28-year-old co-pilot of the Germanwings flight that crashed into the French Alps may have purposely crashed the plane—something that may complicate insurance coverage and the aviation insurance market in general.

Marseille officials announced information from the “black box” voice recorder revealed Andreas Lubitz was alone in the cockpit and started a descent while the pilot was locked out. As the pilot fought to re-enter, there was “absolute silence,” said prosecutor Brice Robin.

Air traffic controllers made repeated attempts to contact the aircraft, but Lubitz refused to respond.

The young pilot had undergone extensive training and was deemed “100% fit to fly without any caveats,” according to Carsten Spohr, head of the German carrier Lufthansa.

Lubitz apparently pressed buttons on the flight monitoring system that put the aircraft into a descent, though the reasons behind is actions are unknown.

“It appears that the reason was to destroy the plane,” said Robin, who added that investigators have not discovered any evidence linking Lubitz to extremism or terrorism.

Without an exact determination of the cause of the crash, it may be difficult for insurance companies to settle payouts.

For example, the gunning down of Malaysia Airlines Flight 17 near the Russia-Ukraine border complicated insurance coverage due to a “wartime exclusion” that is often included in aviation hull and liability policies. While it is unlikely the Germanwings crash was the result of an act of war, certain other exclusions—perhaps for terrorism or suicide—may apply.

Liability costs may also vary depending on victims’ nationalities, as governments differ over how citizens can sue airlines for damages.

The loss of the Germanwings aircraft is just the latest in a long line of aviation tragedies over the past year. Aviation insurance experts have predicted an increase in market premiums in the wake of these events—an increase that has already taken place in some cases.

The Centre for Asia Pacific Aviation reported premium increases of 10 to 20 per cent for all-risk policies last year, and a report from Lockton Companies estimates the cost of insuring a plane against attack will nearly double this year.

As of last year, insuring a new aircraft worth $200 million would cost an airline about $40,000. Now, that figure could jump to $80,000.

“For a number of years, abundant capacity has placed considerable pressure on pricing, as well as terms and conditions, across all aviation lines,” said Catherine Thomas, director of analytics at AM Best. “At the beginning of 2014, rates were significantly below peak levels,” and despite a few losses, the market was still profitable.

But now, “losses will considerably outweigh premiums written, and insurers are expected to react with substantial rate increases,” Thomas said.
 

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