Heathrow disruption could cost travel insurers tens of millions of dollars

By Michael Jones

March 21 - (The Insurer) - The disruption caused by Friday's closure of Heathrow Airport will cost travel insurers tens of millions of dollars in covered claims, DBRS Morningstar (DBRS) said in a commentary.

• Claims manageable for travel insurers if Heathrow closure limited to 24 hours or less

• Airport unclear on reopening timeline; cause of fire remains unknown

• Likely insured losses of more than $20 million for two damaged transformers, energy sector source says

If the closure of Heathrow Airport is limited to 24 hours or less, the note said it expects an above-average level of travel insurance claims in March but manageable financial losses for the sector given insurance groups’ high degree of business line diversification.

“This incident could cause a temporary increase in the cost of travel insurance and/or the restriction of certain coverage, particularly for travel involving critical air hubs,” said DBRS.

The note said that most flights in and out of Heathrow are international and a significant proportion are to long-haul destinations, both of which see higher travel insurance take-up trends.

DBRS said that if the closure is limited to one day, the event would have a smaller impact than the Federal Aviation Administration’s January 2023 temporary halt to U.S. domestic flights. This saw more than 15,000 flights delayed and more than 2,000 cancelled.

Earlier today a Heathrow spokesperson said that it was unclear when Europe’s busiest airport would be able to reopen.

Heathrow had been due to handle 1,351 flights on Friday, flying up to 291,000 passengers. The closure forced flights to divert to other airports in Britain and across Europe, while many long-haul flights returned to their point of departure.

Heathrow Airport said the outage was caused by a fire at a North Hyde substation in West London.

The fire brigade said the cause of the fire remains unknown, but that 25,000 litres of cooling oil in the substation’s transformer had caught fire.

One senior energy market source said the fire had taken out two transformers at the North Hyde substation, which they said could “easily be north of $20 million” in insured losses.

Earlier on Friday , Nardac partner Tom Harries told The Insurer: "I don't believe this incident will significantly impact the rates in the energy sector."

Three aviation market sources said larger insured losses for Heathrow, and other businesses in the area, will likely relate to business interruption (BI) or contingent BI cover.

Nardac partner Harries expects National Grid to have third-party liability insurance that would help them cover obligations to meet supply and damage, both physical and non-physical, to surrounding property. He said this was particularly relevant for Heathrow Airport.