Aviation insurers look set for negligible losses from Heathrow disruption

By Michael Jones, George Abbott

March 21 - (The Insurer) - Aviation insurers are likely to avoid significant insured losses from the closure of Heathrow Airport that has caused widespread disruption today, according to three senior aviation market sources.

• Cause of fire unknown; UK Energy Minister Ed Miliband says foul play not evident

• Colour of smoke suggests damage to oil-immersed shunt reactors, Nardac's Harries says

• Heathrow disruption not expected to cause insured losses of note to aviation market

Cancellation numbers by themselves are not expected to be enough to see insured losses of any notable size, two senior aviation market sources said.

Should any larger insured losses be incurred they will likely relate to any business interruption cover that Heathrow or other impacted businesses may have in place, three aviation market sources said.

Initial market commentary suggests that losses to the energy market from the substation fires which caused the airport's closure will also be manageable.

Nardac partner Tom Harries said that, while it was difficult to determine the exact nature of the losses, the colour of the smoke suggests damage to oil-immersed shunt reactors. He said these typically have a value of a few million pounds.

Harries added: "I don't believe this incident will significantly impact the rates in the energy sector."

Britain’s National Grid said on Friday that a fire at the North Hyde substation in West London had damaged equipment and caused a loss of power supply in the area.

The fire brigade said the cause of the fire was not known and UK Energy Minister Ed Miliband said it did not appear to be foul play.

Miliband said the fire had prevented the power backup system from working and that engineers were working to deploy a third backup mechanism.

As of 0600 GMT power had been restored to 62,000 customers, with 4,900 currently without power, National Grid said.

The fire caused Heathrow Airport to shut on Friday due to a significant power outage, the airport said. The airport was scheduled to handle 1,351 flights and up to 291,000 passengers during the day.

This forced a number of planes to divert to airports across Britain and Europe, with many long-haul flights returning to their point of departure.

A Heathrow spokesperson told Reuters in an email that there was no clarity on when power would be restored, and predicted significant disruption over the coming days.

"The National Grid could incur penalties for the incident but these are capped as a percentage of turnover. And you’d expect third-party liability insurance, too. This will help them cover their obligations to meet supply, particularly in the case of Heathrow Airport, and damage, physical and non-physical, to surrounding property,” Nardac’s Harries said.