News
High insurance rates strangle local flights
Despite renewed growth in tourism, prohibitive insurance liability limits–now over US$ 180,000 a passenger–is strangling growth in domestic aviation and have grounded aircraft that can otherwise ferry people around the country, local operators have warned.
The Civil Aviation Act of Sri Lanka recognises that any aircraft that carries passengers, baggage or cargo must be covered by insurance. Separately, insurance liability limits for passengers, baggage and cargo are governed by the Sri Lanka’s Carriage by Air Act.
This law was passed in 2018 to bring domestic legislation in line with the Montreal Convention (MC) which defines airline liability when passengers die or are injured, or when baggage and cargo is delayed, damaged or lost.
International conventions govern global traffic. But Sri Lanka, through its Carriage by Air Act, had decreed that the same terms applicable to international flights would also apply to domestic ones. This included insurance liability limits. And for cross-border flights, these are set in SDRs (or Special Drawing Right, an international reserve asset created by the IMF to supplement its member countries’ official reserves).
Under a Civil Aviation Authority of Sri Lanka (CAASL) directive issued in October last year, the limit of liability for a passenger is 128,821 SDRs. At yesterday’s rate of conversion, this amounts to US$ 180,767.50 a passenger. There are other limits set for baggage and cargo, all of which are towering amounts requiring high premium payments. They increase every five years in keeping with inflation.
In enforcing its directive, the CAASL notified domestic operators that it will not issue the mandatory Air Operators’ Certificate (AOC) if insurance requirements are not met. This meant that aircraft operators were now required to strictly comply.
“The issue was raised with us that these values are very high because, obviously, they were designed for international carriage,” said Tazio Ratnayeke, Designated Senior Civil Aviation Inspector at the CAASL.”
The 13-member Aircraft Owners and Operators’ Association Sri Lanka (AOOASL) appealed to the Aviation Ministry last year and Cabinet approval was granted in May 2021 to amend the relevant sections of the Carriage by Air Act. However, this is still in the pipeline.
The CAASL did lower the liability limit for third-party insurance for domestic operators as this comes directly under the Civil Aviation Act, said Mr Ratnayeke. The liability limit for third parties is, therefore, in rupee values but it continues to be in SDRs for passenger, baggage and cargo.
The Aviation Ministry has now set up a sub-committee chaired by the Secretary to the State Ministry of Aviation to find a solution, said Samith Abeygunawardana, AOOASL head. At a meeting held on February 10, it was agreed that the law must be amended and operators were asked to propose minimum liability limits. This has been done and a letter will be sent tomorrow, Mr Abeygunwardana said.
“There has to be regulation but it has to be fair to domestic operators in Sri Lanka,” he stressed, saying that such high liabilities also push up ticket prices.
“The sub-committee is looking at amending that law so that the Montreal Convention will do what it was supposed to do–which is to govern international carriage–and so that Sri Lanka will apply its own laws and regulations as far as insurance is concerned for domestic passengers, baggage and cargo.”
The majority of domestic passenger aircraft are passenger Cessnas.
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