“Therefore it is premature and speculative to talk about the level of price rises” for war-risk insurance, the most price-sensitive component in this market, Brown says. He is also chairman of the Aviation Committee of the London International Insurance Brokers' Association (LIIBA).

Flight plans and coverage limitations

At the same time, Brown did say it is true some insurers are asking for precise details of flight plans and are considering no longer providing certain types of coverage for flights over areas of armed conflict in the Middle East and parts of Africa.

“Limitations are being applied,” Brown says. Specifically, he notes, there are certain geographical limitations surrounding flights to the Eastern Ukraine and Libya.

(The latest example was Friday, when the U.S. Federal Aviation Administration issued guidance telling airlines flying over Iraq to continue flying at over attitudes over 30,000 feet. The guidance is mandatory only for U.S. carriers.)

Brown said that it is “too early to comment” as to whether there will be substantive price hikes because “there have been no major renewals since” the Malaysia Airlines plane was shot down in the Eastern Ukraine.

“We would hope that insurers will leave any price amendments, if there are to be any, until the next renewal, although on the hull war section they do have the opportunity to give notice to re-price,” Brown says. “Certainly there could be some anticipation of price rises on the war-risk policies.”

State of the market

Neil Smith, head of underwriting, adds that “there is capacity around the world” for war-risk airline insurance, and that Lloyd's managing agents generate most of the capacity for war-risk insurance. “But the market for all-risk insurance is much broader,” Smith says.

Hayes says he expects aviation insurance in general will rise, but that he doesn't see much of an impact on consumers. “The cost of insurance is minimal; it comes out to 40 to 50 cents per passenger per flight,” Hayes said. “If rates increase 20%, that will translate into pennies per passenger.”

Hayes estimates hull-risk insurance will go up “considerably to cover the cost of these planes, but then they will go down again” as the losses recede.

For all-risk policies, there is a different story, Hayes said. “You would expect rates to increase, but there is so much over-capacity in the market at the moment, some underwriters will say that the Malaysian losses are so unusual, they will not happen again, and therefore we should not increase rates.

“We will have to wait and see,” Hayes says.

Garrett Hanrahan, Marsh U.S. aviation practice leader, adds, “Underwriters are reacting in a rational manner and are looking at the individual risk profiles of airlines, based on geographies and claims histories.”

The 2013 gross premium estimates for all-risk insurance is $1.671 billion, according to David Gasson, secretary general of the International Union of Aerospace Insurance (IUAI), the international association which represents insurers in the aviation/space sector.

War-risk insurance, which airlines pay for separately, had 2013 written premiums of $87 million, a relatively low figure. Another sector, liability insurance for airlines, had written premiums of $132 million, Gasson projects.

Hayes projects that so-called “hull war” premiums will rise by “hundreds of percent.” He projects losses in this category, from damages to planes parked in an airport in Libya as well as the Malaysian Airlines losses, the plane that disappeared earlier this year and the Ukrainian disaster, will total $600 million or more, and premiums for this year are around 12% of that.

“This year, the war market is paying for half of the first Malaysia hull,” Hayes says, “It is paying 100% of the second Malaysian loss.”

He adds that losses from aircraft damaged and destroyed at Karachi, then the war loss due to fighting in Tripoli, Libya, plus other losses, will bring the total to $600 million or more.

Hayes notes that, in Tripoli, inspectors cannot even get to the scene. “It is not safe, and the policies have been cancelled. Thee airlines involved are Libya Airlines, Afriqiyah Airlines and another airline company,” Hayes says. “The airlines are responsible for this,” he adds, saying that the rough estimate from losses on this terrorist act alone is around $400 million.