Insurance pricing for air transport worldwide is subject to sudden and hardly predictable adjustments. The increase in premium costs after the Sept. 11, 2001, terrorist attacks and, more recently but less severely, after the June 2009 crash of Air France Flight 447 in the Atlantic Ocean illustrate how aviation insurance premiums can fluctuate because of unforeseeable events. Since the immediate aftermath of Sept. 11 — when insurance premiums reached levels eight to 10 times higher than today — premiums have considerably decreased, mostly because of the availability of huge financial capacity to absorb losses and strong competition.
Airlines voluntarily purchase insurance coverage or are required to by law because insurance is the most cost-effective financial risk protection against the consequences of major accidents. Airlines typically self-insure most of their non-catastrophic, attritional losses. Insurance contracts are generally written so that airlines pay any damage below…
