AIR explains why disruption to European air travel is not expected to trigger large insurance losses
It has caused unprecedented travel disruptions in Europe, but the ash plume from an Icelandic volcano is not expected to be a significant insurance loss.
According to AIR, airlines generally do not have insurance coverage to compensate for this type of disruption, which falls under “act of God” exclusion clauses.
Typical airline insurance policies cover damage to the body of the plane, and business interruption payouts would only be triggered as a result of physical damage.
Representatives from several major insurers and reinsurers have said that they expect very limited financial impact from the disruption. Stranded passengers, however, may be able to recoup some costs through personal travel insurance policies.
While some of the ash has fallen to the earth’s surface, property and agricultural damage is not expected to be a concern, said AIR. The impact to tourism is also expected to be limited, as travelers will continue to purchase food and shelter wherever they are stranded. The impact on imports and exports will likely be small as well, as only a small portion of international trade is conducted by air.
In addition to the costs to the airline industry, the major source of loss may be to economic output from people unable to return to work, estimated at around $500 million a day by an economist from the Royal Bank of Scotland. Unless the restrictions remain in place for a long time, however, the impact on economic growth is expected to be minimal.
There is much uncertainty regarding how long the travel disruptions will last. For one, volcanologists do not know for how long the eruptions will continue. According to AIR, the previous eruption in 1821 continued for several months, in addition to triggering a much larger eruption in the nearby volcano of Katla. The latest event on Wednesday, April 14, is a continuation of eruptive activity in the Eyjafjallajökull volcanic system that began March 20, 2010, which opened up new volcano vents and built a 27-story-tall cone of magmatic rock. Unlike the earlier eruption, the latest event occurred beneath a 200-meter-thick block of glacial ice. The molten rock quickly thawed masses of glacial ice, triggering two jokulhlaups, or outburst flood events, north and south of the mountain. Consequently, when magma interacted with this melted water, it generated an explosive plume of volcanic gases and fine ash more than 10 kilometers high.
Additionally, it is not known for certain how long the ash will remain in the atmosphere, which depends on meteorological conditions, says AIR. While the cloud of ash was initially transported to Europe by high winds, a large high-pressure system has settled over the UK and Europe, bringing light winds and preventing the dispersal of the ash plume. Authorities in Iceland have reported that volcanic activity has decreased and the latest advisory by the UK Met Office’s Volcanic Ash Advisory Centre in London at 12:00 UTC reported that the plume showed signs of dying down with only small amounts of ash—less than 1,828 meters (6,000 feet) high—remaining. The plume is expected to reach Canadian shores and the southern tip of Greenland later tonight.
Test flights through the volcanic ash have been conducted by many airlines, including AIR France, British Airways, KLM, and Lufthansa, and they have thus far reported no damage to aircraft. Authorities, however, maintain that the ash, a mixture of rock, glass, and sand particles, can have disastrous consequences for plane bodies and engines.
The Eyjafjallajökull volcano, located in southern Iceland approximately 130 km southeast of the capital of Reykjavík, last erupted in 1821. After stirring back to life in late March, last week’s explosive eruption sent volcanic ash as high as 11 km into the sky. This massive plume of ash has covered much of the airspace in the United Kingdom and continental Europe, prompting aviation authorities to ground tens of thousands of flights.
On Thursday, aviation authorities began closing airspace over much of the United Kingdom. As the plume of ash moved east and south, other countries across an immense swath of Europe stretching from Portugal to Russia began cancelling flights and closing down airports, stranding millions of travelers. As of Monday morning, most major European transportation hubs—including the United Kingdom, Germany, Netherlands, Poland, northern Italy, and most of France—remain closed to flights. Airports in some southern and eastern European countries are beginning to resume operations; these include Spain, Romania, Czech Republic, Hungary, Austria, Estonia, Finland, Hungary and Turkey.