Insurance Details on Loss of Malaysian Air Flight MH370 Clouded

March 27, 2014 by Charles E. Boyle

Very few details have been released by the re/insurance industry related to the missing Malaysian Airlines flight MH370, which has caused some minor confusion as to the re/insurers providing coverage for claims.

The confusion is primarily the result of the fact that aviation coverage is very complex. Although accidents of this kind are infrequent, when they do occur they are potentially very costly, affecting multiple entities.

That means coverage is spread throughout the industry by co-insurance; i.e. insurers and reinsurers each take a portion of the risk. The company with the largest share of the potential loss normally becomes the leading insurer or reinsurer.

Allianz Global Corporate & Specialty has been identified as both the lead insurer and the lead reinsurer. An Allianz spokesperson in London confirmed that it is officially the latter. Malaysia’s Etiqa Insurance & Takaful, along with other local insurers, is the lead insurer covering the aircraft. Claims relating to MH370′s disappearance, and presumed loss, will therefore be initially presented to Etiqua.

Practically speaking Allianz and other major re/insurers will bear the bulk of those claims, as much as 99 percent of the insured losses, which cover not only liability, but also the hull loss and related costs arising from the tragedy. To what extent remains undetermined, as so far no debris from the airliner have as yet been recovered and the cause of the crash is still unknown.

Willis’ London office brokered both the liability and the hull coverage, representing Malaysian Airlines as its client. Coverage, however, was reinsured concurrently with the issuance of the policy. The vast majority, if not in fact all of it, was placed through the London market or Lloyd’s. As Lloyd’s is a subscription market, the proportionate shares of the total risk placed there were in all likelihood predetermined by prior agreement—treaties in the case of reinsurance—between the various parties.

At this point further details concerning potential liability, policy limits and details, and the companies involved remain confidential. There are certainly a number of international re/insurers who may have exposure incident to the disappearance of MH370, but that information will only be forthcoming if and when the cause of the airplane’s crash into the Southern Indian Ocean is more fully determined.

(This article was originally published by Insurance Journal. Reported Charles E. Boyle is the international editor of Insurance Journal.)