Air India AI171 crash: The mammoth ₹4,000-crore shock that may rewire global aviation insurance, explained

In what may go down as India’s most expensive aviation insurance payout to date, the tragic crash of Air India Flight AI171 soon after taking off from Ahmedabad airport last week has stunned the aviation and insurance industries alike. With the death toll at 274, including passengers and crew members, the extent of the damage is not just emotional; it is financial and globally felt.

The crash, which tragically killed 241 people on board and 33 on the ground, has triggered insurance claims worth an estimated ₹3,940 crore ($475 million), making it one of India's costliest aviation disasters, says PolicyX CEO Naval Goel. “The total claim comprises approximately $125 million (₹1,079.2 crore) for the loss of the Boeing 787 Dreamliner itself and $350 million (₹3,021.6 crore) for liability, covering passenger compensation (a minimum of 151880 SDRs per deceased, plus ex gratia payments from Air India and potential further claims) and third-party property damage on the ground.”

He added that Indian insurers like Tata AIG General Insurance and GIC Re are involved. “The vast majority (over 95%) of this financial burden will be borne by major global reinsurers, primarily based in the London and Bermuda markets, with AIG reportedly leading Air India's reinsurance programme. This significant loss event is expected to 'harden' the aviation insurance market, leading to increased premiums and stricter terms for airlines globally, particularly for wide-body aircraft, as reinsurers reassess their risk exposures and recalibrate pricing models for the upcoming renewal cycles.”

Why did this crash trigger such a massive claim?

Several factors contributed to the staggering size of this insurance claim. 

High-value aircraft: Air India’s Boeing 787-8 Dreamliner, a modern wide-body jet, was insured for ₹850 crore and upgraded in April 2025, according to reports.

Total hull loss: The crash marks the first-ever total loss of a Boeing 787 since its introduction in 2011.

High fatality toll: A massive death toll, including students in a hostel, has raised liability costs sharply.

Comprehensive insurance cover: Air India’s recent policy upgrades included broader liability cover and war-risk protection.

Pending investigations: If technical negligence (such as gear retraction failure) is confirmed, the liability may exceed current insurance caps, adding further pressure on the insurer and potentially Air India and Boeing.

Shared risk, shared vulnerability

Air India’s insurance coverage is reportedly valued at around ₹1.7 lakh crore ($20 billion, the entire company’s aviation insurance umbrella), with an annual premium close to ₹250 crore ($30 million). But the risk isn’t equally shared.

Sajja Praveen Chowdary, director at Policybazaar for business, says, "While Indian insurers like Tata AIG and New India Assurance handle the primary underwriting, they retain only about 5-10% of the overall risk. The majority, over 90%, is passed on to international reinsurers based in London, Europe, and the U.S. This global risk-sharing structure not only disperses financial exposure but also links India’s aviation insurance sector to trends in international markets."

The risk is further spread through retrocession, a process where reinsurers transfer part of their risk to other entities. “Retrocession limits exposure in large-loss events like aviation crashes, earthquakes, or terror attacks," said Chowdary.

The global retrocession market is complex, involving traditional reinsurers like Swiss Re and Munich Re, Lloyd’s syndicates, insurance-linked securities (ILS) funds, and catastrophe bond investors. For instance, if a reinsurer faces a $300-million liability from an air crash, it may have already passed on $200 million to retrocessionaires. This layered risk structure enhances resilience and demonstrates how the impact of a single incident is absorbed across the global insurance ecosystem.

What lies ahead for airlines

The claim size is expected to drive up aviation insurance premiums globally, especially for carriers flying Boeing 787s. In fact, airlines like Air India, SpiceJet, and Akasa could see their premium costs rise by 10–30%, say experts. For Air India, that means an annual jump of $3–9 million.

For an industry that operates on tight margins, these added costs may eventually hit passengers, as airlines try to recover money through higher ticket prices, delayed fleet upgrades, or reduced onboard services.

The long and layered claim settlement process

According to Hari Radhakrishnan, an expert at the Insurance Brokers Association of India (IBAI), the claim settlement process depends on various factors. “Firstly, one must know the cause of the accident. If it is not due to the airline's fault, its liability for passenger death would be limited as per the Montreal Convention. Otherwise, there can be claims for enhanced compensation from the airline. The compensation for deaths on the ground and property damage would be dealt with by civil courts.”

As regards the loss to the hull, this will be settled by the Indian lead insurer to Air India, once the investigation is done and the cause of the loss and assessment is determined. “Since the amount involved is large, the lead Indian insurer can ask for a ‘cash call’ whereby the insurer first gets an advance payment from reinsurers, which is then paid to the airline,” he explains. 

He adds, “If the cause is accidental, the Hull All-Risks policy will trigger, and that policy will pay. If the cause is sabotage or terrorism, then Hull War-Risk policy will pay. As regards passenger liability and third-party liability claims, there will be many individual claims, all of which won’t be settled simultaneously. One approach is to open an escrow account and money deposited by the reinsurers into that, which will be used to pay off individual claims as and when they mature. The exact arrangement will be decided in due course.”

Radhakrishnan says that the names of the reinsurers are not officially disclosed. 

A wake-up call

The aviation sector has seen steady growth over the past decade. But this single, devastating crash has exposed how deeply connected Indian aviation is to global risk networks. From increased premiums to ripple effects on flyers’ wallets, the shock is not just in the loss of life but in the billions now changing hands across continents.

As investigators piece together the truth behind what happened to AI171, one thing is clear: this tragedy may redefine the economics of flying in India for years to come.