Non-life insurers extended Rs 614.05 million in compensation to settle claims of aviation companies in the fiscal year that ended on July 15, as against Rs 417.75 million doled out in the same period a year ago, according to figures provided by the Insurance Board.
The amount spent on settling claims last fiscal exceeds the premium amount of Rs 564.23 million collected in that year. A year before that, insurance companies had mobilized total premium of Rs 556.37 million.[break]
“The compensation amount demanded by aviation companies has been increasing lately due to growing number of accidents in the sector,” a high-ranking official of the Insurance Board told Republica on condition of anonymity as he does not have the authority to talk to the press.
Nepal has witnessed at least six serious aircraft accidents since Aug 2010 in which all passengers and crew members on board were killed. Then there are number of other accidents that occur at least once a month on average because of problems on runways, human errors, excess weight and collision with birds.
“Due to the growing risk faced by the sector, reinsurance companies are warning to raise the premium amount on aviation insurance policies,” the official said.
All non-life insurers here overtly rely on reinsurance companies located abroad to cover the risks that they have owned. As a result, they retain as little risk as possible and send whatever premium income is generated to reinsurers abroad.
The problem with insurance companies providing cover to aviation business is that they almost entirely rely on reinsurers, as most of them cannot retain more than 0.05 percent of the total risk. This means these insurers extend only 0.05 percent of the total compensation amount demanded by aviation companies while relying on reinsurance companies to settle the rest of the payment.
Shikhar Insurance, the largest non-life insurer here in terms of providing cover to the aviation business, for instance, collected Rs 250 million in aviation insurance premium last fiscal year, of which Rs 248.63 million was paid to reinsurers, the Insurance Board data show.
This was the same with other companies like Himalayan General Insurance and Everest Insurance that generate significant chunk of business by selling insurance policies to the aviation sector.
Insurance companies say they can do nothing about it as aviation insurance business entails big risks and insurers worldwide do not prefer to retain such risks that have the potential to push them to the verge of collapse.
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