Property, Agricultural Damage Not Major Concern from Volcanic Ash

April 20, 2010

While some of the ash from the Eyjafjallajökull volcano in southern Iceland has fallen to the earth’s surface, property and agricultural damage is not expected to be a concern, according to a catastrophe risk modeling firm.

AIR Worldwide said the impact to tourism is also expected to be limited, as travelers continue to purchase food and shelter wherever they are stranded.

According to AIR, airlines generally do not have insurance coverage to compensate for this type of disruption, which fall under “act of God” exclusion clauses. Typical airline insurance policies cover damage to the body of the plane, and business interruption payouts would only be triggered as a result of physical damage. Representatives from several major insurers and reinsurers have said that they expect very limited financial impact from the disruption. Stranded passengers, however, may be able to recoup some costs through personal travel insurance policies.

The impact on imports and exports will likely be small as well, as only a small portion of international trade is conducted by air.

The eruption has caused unprecedented flight disruption over much of Europe. A massive plume of ash has covered much of the airspace in the United Kingdom and continental Europe, prompting aviation authorities to ground tens of thousands of flights.

In addition to the costs to the airline industry, the major source of loss may be to economic output from people unable to return to work, estimated at around $500 million a day by an economist from the Royal Bank of Scotland. Unless the restrictions remain in place for a long time, however, the impact on economic growth is expected to be minimal.

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