Air India crash sparks safety, insurance, and policy overhaul

The Air India Flight 171 crash, which claimed over 240 lives in Ahmedabad, has triggered a major overhaul in India’s aviation, insurance, and safety policies. With insurance claims expected to reach US$475 million, the tragedy has spotlighted gaps in airline liability, compensation norms under the Montreal Convention, and the role of global reinsurers.

As the Tata Group and insurers expedite relief and settlements, the disaster underscores the need for stronger compliance, transparent investigations, and long-term safety reforms to restore public trust in Indian aviation.

The Indian aviation industry is facing a crisis of confidence after the catastrophic crash of Air India’s Boeing 787-8 Dreamliner, which claimed the lives of all except one passenger in Ahmedabad on June 12, 2025. The Air India 171 flight took over 240 lives, including several on the ground.

Despite being statistically rare, aviation accidents evoke intense public fear and scrutiny because of their catastrophic nature, high fatality rates, and dramatic media coverage. Unlike car crashes, which happen frequently and individually, a single plane crash often results in the loss of hundreds of lives at once, amplifying its emotional and psychological impact. Air travel also symbolises technological mastery and safety, so when failures occur, they shake public trust not just in airlines, but in regulators, manufacturers, and human judgment. The suddenness, scale, and helplessness associated with such tragedies make them resonate deeply, prompting calls for accountability and systemic reform.

Since its takeover by Tata Sons in 2022 from the government, Air India has been working towards becoming a ‘world-class’ airline, even amidst persistent issues like delayed flights and subpar service standards. But this devastating tragedy has not only eclipsed those efforts-it has dealt a severe blow to the airline’s credibility and long-term ambitions.

Air India’s resources will now be diverted toward addressing the aftermath of the crash-managing insurance claims, identifying the cause, implementing corrective safety measures, and rebuilding its reputation. Tata AIG is the lead insurer, with participation from New India Assurance, ICICI Lombard, and a few public sector companies.

Insurance claims related to the crash are anticipated to reach approximately US$475 million, covering both the aircraft’s hull and engine as well as liability for the loss of lives, according to a report by Bloomberg News. Policybazaar data indicates that Air India’s entire fleet is insured for around US$20 billion, with an annual insurance premium of nearly US$30 million.

All affected passengers will receive compensation under Air India’s insurance cover, and since the flight included people of various nationalities, the Montreal Convention will guide payouts. India, a signatory since 2009, mandates a minimum compensation of 128,821 Special Drawing Rights (SDRs)-around `1 1.5 crore per victim-regardless of fault. Crucially, the treaty also allows for unlimited liability if negligence is proven.

Historically, the process of determining compensation in aviation disasters has been shaped by a combination of international conventions, domestic legal systems, and the unique circumstances surrounding each crash. A notable example is the 2015 Germanwings Flight 9525 tragedy, where the co-pilot deliberately crashed the aircraft, killing all on board. In that case, Lufthansa — the parent airline — offered initial financial assistance to victims’ families, but many chose to pursue higher compensation through courts, citing alleged negligence in failing to properly assess the pilot’s mental health.

In contrast to the Montreal Convention’s provisions, countries still governed by the older Warsaw Convention enforce much lower compensation ceilings (as low as US$8,300), creating significant disparities across regions. Airlines also tend to offer interim relief to address immediate financial needs.

For instance, Germanwings provided upfront payments of around 54,000 to each affected family. However, inconsistencies in these practices have led to calls for greater global uniformity. Together, these cases underscore the complex interplay between legal obligations, humanitarian considerations, and reputational management in the aftermath of aviation tragedies-and set an important precedent for how compensation may unfold in the Air India Flight 171 case.

Given the magnitude of potential claims, Indian insurers are unlikely to bear the full risk alone. Reinsurance giants like Lloyd’s of London, Swiss Re, and Munich Re are expected to absorb a significant portion of the liabilities, making this a globally shared financial event. As investigations unfold, reinsurers will play a critical role in evaluating Air India’s compliance with safety protocols and pilot assessments.

Meanwhile, claim settlements are expected to vary based on several factors, including passenger nationality, travel class, and whether they held individual travel insurance policies. Passengers with additional personal coverage may receive supplementary payouts beyond the airline’s liability. Families of ground victims, including those who lost homes or businesses, will also seek compensation for property damage and loss of livelihood. However, the claims process may be complicated in cases where entire families perished, leaving no immediate next of kin.

In addition to insurance payouts, Tata Group has announced `1 crore in compensation for each deceased person’s family, including those who died on the ground. The company also stated it would cover medical expenses for those injured and ensure necessary care and support. The crash impacted several people in the Meghani Nagar area near the airport, including doctors, students, hospital staff, and residents.

The insurance industry is navigating an unfamiliar situation — balancing thorough checks with the need for swift, compassionate action. To speed up the process, the Insurance Regulatory and Development Authority of India (IRDAI) issued a circular on June 14 directing insurers to submit weekly claim updates from June 16. It also asked them to appoint nodal officers, waive formalities like FIRs and postmortem reports, and expedite disbursals under life and personal accident policies. As the insurance and legal processes unfold, the crash of Air India Flight 171 is likely to become a reference point for future aviation safety and compensation practices in India. It underscores the pressing need for robust compliance mechanisms, timely audits, and better coordination among insurers, regulators, and airlines.

The tragedy also brings to light the human cost of aviation failures, demanding not just financial settlements but also policy reforms that prioritise preventive measures. For Indian aviation to restore public confidence, it must now focus on transparent investigations, survivor support, and long-term safety investments. Whether through fair compensation, regulatory accountability, or global insurance cooperation, the collective response to this disaster will shape the future trajectory of India’s aviation sector.

(The writer is Business Correspondent at India Business & Trade. Views are personal)