Ash and the insurance mess

Insurers have come under pressure to pay out on missed flights as a result of the volcanic dust cloud, despite their policies not covering the event, the Telegraph reports.

A spokesman for the Association of British Insurers said: “You get what you pay for and if you bought an off the peg insurance policy, it is not going to cover you for everything.”

Mike Powell, of personal finance reserachers Defaqto, suggests travellers who have already checked in may be covered. "Many policies, if not most, will only provide cover on the basis that the insured person officially checks in,” he said.

Change of heart

Many companies whose policies did not cover this risk, such as Aviva and HSBC, have said they will pay out. Aviva described it as “good will”. Aviva initially said it would not pay out.

Airlines not covered

Dow Jones said airlines are not covered for grounding planes due to volcanic events.

Airlines don't have insurance for grounding planes due to natural events because policies would be very expensive. Typical airline insurance policies would cover damage to planes if they flew through a volcanic ash cloud

"A plane crash as a consequence of a flight through ash would be 100% insured. It's an obligatory insurance but unlikely to happen due to the closure of airports," said Christoph Groffy, a spokesman for Talanx AG's unit HDI-Gerling, one of the largest insurers of German aviation companies such as airlines and airports.

BI policies too expensive

"Business interruption policies are expensive and generally, airlines or airports haven't bought them, so the full risk lies with them," Groffy said.

A spokeswoman for reinsurer Hannover Re AG (HNR1.XE) said business interruption isn't covered in the company's aviation policies, so "no impact is expected from this event." The comments were echoed by insurers in Germany and the U.K.

"The way the airlines are treating this is very much like a weather delay such as a severe snowstorm or an ice storm," said Robert Hartwig, president of the New York-based Insurance Information Institute, which provides data to better understand insurance issues.

"Even though the event is going to be very, very expensive, costing billions in terms of economic losses, it's unlikely that much of it will be insured," Hartwig said.

TUI cost already £20m

This morning TUI Travel, which include the Thomson, First Choice and Airtours brands, said as of Sunday 18 April, it had approximately 100,000 customers who were due to have returned home from holiday, but were stranded. It said 90% of those who failed to travel from the UK are choosing to re-book their holidays for a later date.

It said the cost so far had been £20m, with daily costs running at £5m - £6m.