European Insurers Expect Little Hit from Volcano Fallout

April 16, 2010

Airlines which stand to lose millions of euros from a cloud of Icelandic volcanic ash disrupting flights and closing airports across northern Europe are expected to have little recourse to recoup losses from insurance companies.

“Normally, the airlines are not insured against cancellations,” said a spokesman for Munich Re, the world’s biggest reinsurer.

Reinsurers like Munich Re and Swiss Re act as a backstop to insurance companies such as Allianz, helping them to pay for big damages caused by air crashes or liability claims.

Aircraft have been grounded Thursday and Friday through much of northern Europe as a safety measure to avoid the risk of crashes due to the huge ash cloud from the eruption of Iceland’s Eyjafjallajokull glacier volcano. Airports in Britain, France and Germany closed as the cloud spread.

“It’s just an issue for the airlines to handle,” the Munich Re spokesman said.

The world’s fourth-biggest reinsurer, Hannover Re, a major player in air insurance, added that business interruption at airports was also not covered by insurers.

“Given this situation, the current events should not lead to damages for aviation insurers,” Hannover Re said in a statement.

Swiss Re also said the likelihood of “significant impact” on the industry from the eruption “seems low”.

The cloud was also disrupting cargo deliveries on Friday, with Europe’s biggest mail and express delivery company, Deutsche Post, reporting that it was switching to land transport where possible.

“We cannot transport air mail to and from airspace that has been blocked,” a Deutsche Post spokesman said.

But insurers are in the clear on payouts, because contingent business interruption, such as delayed delivery of parts to factories or construction sites, is also not covered.

“It’s only triggered by material damage and this has not occurred,” an Allianz spokesman said.

Munich Re said the disruption caused by the cloud might spark business interest that has been lacking up to now.

“For Munich Re, it would not be a problem to offer (flight) cancellation coverage, but up to now there has not been demand in the market. Maybe that will change now,” the Munich Re spokesman said.

British insurance association ABI said that for individual passengers, volcanic eruptions were not always covered by travel insurance but that airlines often offered a full refund or an alternative flight if the original flight is cancelled.

“Insurance only covers events that happen after the policy is taken out so customers taking out travel insurance from today onwards will not be covered for this event,” the ABI said.

(Reporting by Jonathan Gould, additional reporting by Tom Kaeckenhoff in Duesseldorf; Editing by Sharon Lindores)

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