Traditionally, insurance coverage for supply chain disruption has required physical damage to the insured’s assets to trigger a claim. However, following ongoing air traffic disruption caused by the eruption of Iceland’s Eyjafjallajökull volcano, as well as industrial action in key transport sectors and civil unrest overseas, Guy Carpenter sister company Marsh has seen increased interest from organizations wanting supply chain insurance that includes coverage for losses from non-physical damage.

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An Afriqiyah Airways plane carrying 104 passengers and crew on an international flight crashed as it attempted to land at Tripoli International Airport on May 12, killing all but one person on board. Afriqiyah Airways said Flight 8U771 was carrying 93 passengers and 11 crew. The sole survivor, a child reported to be Dutch, is being treated in a hospital. The Airbus A330-200 was flying from Johannesburg in South Africa to the Libyan capital when it crashed just short of the runway around 06:00 local time (04:00 UTC) after a nine hour flight, the airline said. Eyewitnesses said the aircraft started to break up as it came in to land in clear weather before totally disintegrating. Two flight recorders have been recovered and an investigation has been launched into the cause of the crash. Market sources quoted by Insurance Day said the aircraft had an insured value of USD123 million on a policy led by Catlin. Insurance Day added Afriqiyah Airways is thought to have a liability policy with a USD1 billion limit.

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Focus on Asia Pacific

The main concern for the insurance market in the Asia/Pacific region is the frequency of loss, with several carriers having more than one loss occurrence in the year.

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Despite the slight rate increases that aviation underwriters experienced in the final quarter of 2008, as 2009 began they could foresee another difficult year ahead.The events of September 11, 2001 left the insurance and reinsurance markets reeling. Immediate rate rises enabled the market to rebound. However, an improvement in aviation operational safety standards and a lack of major liability losses in the intervening years created an environment where premium levels fell, year on year. Aviation insurers had cause for concern.

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During 2009 the Aviation market suffered two significant losses. Colgan Air, a US regional carrier crashed on approach to the Buffalo, New York airport and Air France crashed over the South Atlantic. These losses, which significantly impacted the reinsurance market, together with other losses generally contained within insurers’ retention, prompted the direct market to increase premium and rating levels in the second half of 2009.

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Reinsurance rates for most lines of business decreased at the January 1, 2010 renewal. The Guy Carpenter World Catastrophe Rate on Line (ROL) Index decreased by 6 percent in response to a swift and substantial recovery in the capitalization of the reinsurance sector. The combination of the rally in investment markets, much reduced catastrophe loss activity and recessionary effects on demand resulted in an excess of supply and increased competition. This was reflected in a slow renewal in which many contracts closed very late in the season as buyers sought to gain maximum advantage. The overall movements in pricing have also occurred against a complicated background of exposure adjustments, model revisions, program changes and other market noise.

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Terrorism coverage impacts aviation insurance around the world. This is particularly prevalent among airlines, which are required to have passenger and third-party liability coverage to receive landing rights and for aircraft leases. The widespread unavailability of aviation insurance because of issues with terrorism coverage could impair the entire industry.

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A Yemenia plane carrying 153 passengers and crew on an international flight crashed into the Indian Ocean as it approached its destination of the Comoros Islands in bad weather, according to airline officials. Reports said the aircraft was carrying 142 passengers and eleven crew members. The Airbus 310-300, operated by Yemenia, was flying the final leg of a flight taking passengers from Paris and Marseille to Comoros via Sanaa in Yemen. The plane was flying to Moroni, capital of Grande Comore, the main island of the archipelago, and reports said the jet went down around 10 kilometers (6 miles) off Comoros. The Paris airports authority said 66 French nationals were on board the plane. Most of the passengers aboard the Airbus A310 were believed to be Comoros residents returning from Paris, reports said.

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An Air France plane carrying 228 passengers and crew on an international flight has vanished over the Atlantic Ocean after hitting heavy turbulence, according to airline officials. Reports said the aircraft was carrying 216 passengers and 12 crew members, including three pilots. The Airbus 330-200, operated by Air France, was flying direct from Rio de Janeiro in Brazil to Paris in France when it went missing while flying through “a thunderous zone with strong turbulence.” Flight AF 447 left Rio de Janeiro at 19:00 local time (22:00 UTC) on May 31, 2009 and reports said the Airbus sent an automatic message at 02:14 UTC on June 1, 2009 reporting a fault in an electrical circuit, some four hours into its 11-hour flight.

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