News / Asia

Malaysia Airlines Jet Crash Insurance May be Complex, Lengthy

Wreckage from the nose section of a Malaysian Airlines Boeing 777 plane which was downed on Thursday is seen near the village of Rozsypne, in the Donetsk region July 18,
Wreckage from the nose section of a Malaysian Airlines Boeing 777 plane which was downed on Thursday is seen near the village of Rozsypne, in the Donetsk region July 18,
Reuters

Insurance on the Malaysian airliner brought down over Ukraine is likely to pay out relatively quickly if the cause of the crash is determined, but observers say settling insurance for the loss of 298 lives and other liability could be complex and lengthy.

Malaysia Airlines said flight MH-17 disappeared at 1415 GMT as it flew over eastern Ukraine toward the Russian border, bound for Asia. Flight tracking data indicated it was cruising at 33,000 feet when it lost contact with air traffic controllers, apparently struck by a missile.

It should be fairly easy for investigators to determine whether the plane was hit by a missile or blew up for some other reason, said Robert Cohn, an aviation attorney and partner at Hogan Lovells in Washington, D.C.

“Then the interesting issue is who do you go after as the malefactors?” he said. “Are you going to sue a rebel?”

Ukraine accused “terrorists” - militants fighting to unite eastern Ukraine with Russia - of shooting down the Boeing  777 with a Soviet-era SA-11 ground-to-air missile as it flew from Amsterdam to Kuala Lumpur.

Leaders of the pro-Russian Donetsk People's Republic rebels denied any involvement, although around the same time their military commander said his forces had downed a Ukrainian transport plane.

Insurance cover

Which insurers are on the hook for losses, which are usually spread across a wide number of players, depends on whether the downing is considered to have been due to a hostile act.

AGCS, a division of Germany's Allianz SE, is the lead reinsurer covering the aircraft, which London-based insurance broker Aon Plc has valued at about $97.3 million. AGCS is also the lead liability reinsurer for Malaysian Airlines, the company said in a statement.

​“[But] if reports that the plane was shot down are verified, the aircraft loss will be borne by the niche aviation war market, which has recently been pummeled by a series of losses,” Barclays bank said in a research note.

Fighting at the Tripoli Airport in Libya this week saw $200 million to $400 million in damages to aircraft, the bank said.

Atrium Underwriting Group leads the war policy covering Malaysia Airlines, Barclays said. An Atrium spokesman declined to comment.

Malaysia Airlines MH 17 partial flight path from Amsterdam, July 17, 2014Malaysia Airlines MH 17 partial flight path from Amsterdam, July 17, 2014
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Malaysia Airlines MH 17 partial flight path from Amsterdam, July 17, 2014
Malaysia Airlines MH 17 partial flight path from Amsterdam, July 17, 2014

Reinsurance cover for airline fleets is usually split between several of the sector's leading companies, which include Munich Re, Swiss Re and Hannover Re.

Hannover Re said it shared some of the reinsurance coverage for the aircraft but declined to offer details.

“In view of the high number of casualties, it would not be appropriate to release numbers now,” a Hannover Re spokesman said.

Munich Re, the world's largest reinsurer, declined to comment, as did second-largest Swiss Re.

Willis Group Holdings, reported by Bloomberg to have brokered the policy, confirmed that Malaysia Airlines was a client.

In some ways, the investigation will mirror the search for the Malaysia Airlines flight that went missing in March, when Malaysia had jurisdiction and other countries assisted.

The U.S. National Transportation Safety Board, which often investigates air accidents overseas and must be invited to join, said it was still determining its possible involvement in probing the Ukraine loss.

“We are communicating with other government agencies and evaluating what our role will be,” the agency said in a statement.

U.S. and European air regulators warned in April that airlines should avoid flying over the Crimean Peninsula and parts of Ukraine.

However, some airlines were routinely flying over the northern part of Ukraine, said Mark Duell, vice president of operations at FlightAware.com, a flight-tracking website.

Lufthansa AG, Air India and Malaysia Airlines are among the airlines that have flown there, according to FlightAware's data.

“It doesn't seem anyone's been avoiding Ukraine,” Duell said. “I don't see airlines going over Crimea, but I don't see anyone avoiding the rest of Ukraine.”

People walk amongst the debris at the crash site of a passenger plane near the village of Grabovo, Ukraine, July 17, 2014.People walk amongst the debris at the crash site of a passenger plane near the village of Grabovo, Ukraine, July 17, 2014.
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People walk amongst the debris at the crash site of a passenger plane near the village of Grabovo, Ukraine, July 17, 2014.
People walk amongst the debris at the crash site of a passenger plane near the village of Grabovo, Ukraine, July 17, 2014.

However some international airlines, including Australia's Qantas Airways and Korea's two major carriers, said on Friday that they had already shifted routes to avoid Ukrainian air space due to the conflict between Kyiv and pro-Moscow rebels.

Cohn said he expected regulators to issue broader warnings about Ukraine airspace, and that airlines would be more cautious in the area even if regulators did not expand such warnings.

China's civil aviation authorities on Friday ordered Chinese aircraft flying over Ukraine to avoid the country's eastern airspace, state news agency Xinhua reported.

On Thursday, the Federal Aviation Administration said U.S. airlines “have voluntarily agreed not to operate in the airspace near the Russian-Ukraine border.”

“The FAA is monitoring the situation to determine whether further guidance is necessary,” the agency said.

Several airlines, including Turkish Airlines, have since announced they would avoid Ukrainian airspace. 

  • Emergency workers carry a stretcher with a victim's body in a bag at the crash site of a Malaysia Airlines jet near the village of Hrabove, eastern Ukraine, July 19, 2014.
  • Flowers are placed on a plane engine at the crash site of a Malaysia Airlines jet near the village of Hrabove, eastern Ukraine, July 19, 2014.
  • A pro-Russian fighter guards the crash site of a Malaysia Airlines jet near the village of Hrabove, eastern Ukraine, July 19, 2014.
  • A woman holds an anti-Putin placard to protest the downing of Malaysia Airlines MH17 in Sydney, Australia, July 19, 2014.
  • Passengers' belongings are pictured at the crash site of Malaysia Airlines flight MH17 before a visit by OSCE monitors, near the settlement of Grabovo in the Donetsk region, July 18, 2014.
  • People bring flowers and candles to the Dutch embassy in Kyiv, Ukraine, to commemorate the victims of the Malaysia Airlines Boeing 777 plane crash.
  • People walk amongst the debris at the crash site of a passenger plane near the village of Grabovo, Ukraine.
  • A relative of passengers on flight MH17 cries as he waits in a bus to be transported to an unknown location to receive more information, at Schiphol airport in Amsterdam, the Netherlands.
  • People take photos of a screen showing arrival details of Malaysia Airlines flight MH17 (C) at Kuala Lumpur International Airport in Sepang.
  • A woman reacts to news regarding a Malaysia Airlines plane that crashed in eastern Ukraine at Kuala Lumpur International Airport in Sepang, Malaysia.
  • The upper floor of Schiphol Airport in Amsterdam, the Netherlands, is closed for media and reserved for family and relatives of Malaysia Airlines flight MH-17.
  • A relative walks past members of the press as he arrives at Schiphol airport in Amsterdam, the Netherlands.
  • Smoke rises up at a crash site of a passenger plane, near the village of Grabovo, Ukraine.
  • A part of the wreckage of a Malaysia Airlines Boeing 777 plane is seen after it crashed near the settlement of Grabovo in the Donetsk region.
  • The site of a Malaysia Airlines Boeing 777 plane crash is seen near the settlement of Grabovo in the Donetsk region.
  • The site of a Malaysia Airlines Boeing 777 plane crash is seen near the settlement of Grabovo in the Donetsk region.
  • The site of a Malaysia Airlines Boeing 777 plane crash is seen at the settlement of Grabovo in the Donetsk region.

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