Airlines and Volcanic Clouds

The eruption of the Eyjafjallajà ¶kull volcano in Iceland has left the aviation industry reeling, but from the perspective of the insurance markets, the position is relatively clear, according to Aon’s May 2010 Airline Insurance Market News.

Aon notes that successful claims against standard airline liability insurance policies due to delays as a result of the volcanic eruption in Iceland are unlikely. The main reason for this is that this is a natural event and there has not been any actual damage to aircraft or property at this stage.

The picture is similar from the business interruption point of view. Stephen Cross, CEO, Aon Global Risk Consulting, says:

Typically, business interruption (BI) policies will most likely not be responding to the disruption to airspace caused by the volcanic ash. BI policies usually only kick in when there is physical damage. If ash falls to earth and lands on a business’ premises and causes damage, blocking air pipes that could lead to an explosion for example, then that could trigger a resulting BI policy.†

However, Cross  says it’s important to note that insurance policies vary and a firm should always ensure they study their own policy language in determining whether they are able to claim on their insurance cover. Work continues on developing BI cover to make it more relevant and bring it into the 21st century, he adds.

Supply chain management is another critical area. Cross observes that it is the companies that have an effective plan for disruption that are likely to get back on their feet quickly:

While you can’t plan for every eventuality, especially rare occurrences as volcanic eruption, the fundamental principles of sound supply chain management still apply: you should always be aware of what business continuity measures your suppliers of critical inputs have in place and be thinking about alternative suppliers.

Check out I.I.I. facts and stats on volcanoes and aviation.

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