Insurance Firms Nailed as a Result of the Boeing 737 MAX Crashes

LONDON – Insurance experts are suggesting that the claim relating to the two Boeing 737 MAX crashes in 2018 and 2019 is now one of the single biggest claims in aviation history. At around three billion US dollars, it exceeds the two and half billion paid out after the September 11th attacks on the twin towers.

The claim is made up of three factors: the cost of grounding the faulty planes, the costs relating to the crash of the Lion Air flight 610 in October 2018, and the costs relating to the loss of Ethiopian Airlines flight 302 just three months later, on March 10th 2019.

These claims come under Boeing’s manufacturers policy which is led by Global Aerospace, but brokered by Marsh. Aviation reinsurers with the biggest market share include: Swiss Re, Hannover Re and Munich Re.

The portion of loss associated with the Ethiopian Airlines crash is estimated to sit at around $2.25 billion, this increasing from $990 million. Information on the costs of the Lion Air element of the claim are not known, but are thought to rack up into the hundreds of millions of dollars also.

On the 13th March 2019, the whole 737 MAX fleet was grounded by the Federal Aviation Authority. It was earlier expected that Boeing would utilise the same $2.25 billion limit as the Ethiopian liability losses, however the 13 month hiatus for the aircraft has seen Boeing present claims with the grounding as an incremental $500 million to the main $2.25 billion limit.

The above costs are likely to hit reinsurers and retro writers the hardest. A retrospective rated insurance claim is one that adjusts according to the losses incurred by the insured company.

There are some not-very-detailed claims from a number of sources, that say Boeing has an additional layer of financial protection. A policy to the tune of five hundred million dollars said to provide coverage of over $2.25 billion dollars in a syndicated deal.

Looking to the future of aviation insurance, the lifting of tight Covid-19 rules and regulations means that more people will be taking to the skies. This, in turn, means that insurers can up their premiums rather than focusing on what is known as ‘pure rate’.

Quarter four of the year brings its key insurance renewals, and aviation and aerospace businesses wait nervously to see to what degree they will be affected by the uncertainty in the market. Prior to the Boeing 737 MAX crashes, there was a soft insurance market that was driven by lots of competition between insurers.

The one area of insurance that all airlines and manufacturers will feel the hit will be on war covers. Businesses with claims in relation to war cover face a long wait for their policies to be paid out on.

There is a suggestion that it could be a number of years before any companies get their claim money back. AerCap, the largest aircraft lease company in the world has already launched a claim against its contingent all-risk policy due to the conflict in Ukraine.

They are currently caught up in a 3.5 billion dollar high court battle with its insurers in a bid to be paid out on its policy.

On Friday 21 October, a US federal court judge ruled that passengers who lost their lives as a result of the two fatal Boeing 737 MAX accidents are ‘victims of crime’ under the auspices of the Crime Victims’ Rights Act.