MC EXPLAINER Why the push for inbuilt air travel insurance is gaining traction amidst the IndiGo crisis

Travel Insurance in focus after IndiGo issue

India’s aviation sector has seen significant disruption over the past week as IndiGo, the country’s largest airline, cancelled more than 4,500 flights due to a severe pilot shortage. This disruption, which left thousands stranded at airports, has renewed the industry’s push to expedite the rollout of mandatory inbuilt travel insurance for all passengers.

The inbuilt travel insurance framework was reportedly stalled due to implementation complexities around standardising coverage, integrating insurer-airline systems, and deciding who would administer the insurance at the point of booking. However, the IndiGo episode has revived momentum.

Experts told Moneycontrol that most Indian flyers remain uninsured and that inbuilt travel insurance is the only effective solution.

Although discussions around inbuilt travel insurance have been underway for about a month, the IndiGo crisis has intensified the industry’s push for it.

As the airline abruptly cancelled thousands of flights over a week, passengers were left scrambling for refunds, rebookings, accommodation and compensation. Many assumed the airline was responsible for compensating them for every cost arising from delays and cancellations. But airlines are only required to follow DGCA norms, which provide limited obligations and exclude many passenger expenses such as hotel stays, missed onward connections, personal emergencies or baggage-related issues.

Because most passengers had not opted for travel insurance at the time of booking, they found themselves with no safety net, leaving airlines to face the full brunt of anger at airports and on social media.

Experts say, despite India being the world’s fifth-largest aviation market, travel insurance penetration is extremely low.

According to IRDAI data, only 7.5 million lives were covered under overseas policies in FY24, generating Rs 1,099 crore in premiums. The domestic segment is even smaller with only Rs 125 crore in premiums despite 43 crore lives being “covered," and mostly because these were bulk IRCTC or corporate policies, not individual purchases.

The biggest reason for poor uptake is that insurance in India is likely to be optional during online booking. "The choice is easily skipped, often unintentionally. In contrast, most developed aviation markets embed travel insurance directly into the ticket price, making coverage seamless and almost universal," they said.

Another challenge, they pointed out, is poor product awareness. "Many Indians still believe travel insurance applies only to rare events like accidents, not everyday disruptions such as delays, cancellations or baggage mishandling, despite these being the most frequent causes of travel distress today," they said.

Additionally, they added, some passengers assume their credit cards already give them adequate cover, "although in most cases these benefits are either limited or require complex claims processes. This mismatch between expectations and reality adds to frustration during disruptions."

By ensuring every passenger is automatically covered, airlines would reduce the number of disputes over refunds, hotel bills, missed connections and emergency expenses, which are all issues that have resurfaced prominently during the IndiGo chaos.

For airlines, inbuilt insurance also means less frontline conflict. Today, airline staff, not insurers, must manage customer anger, process complaints and absorb reputational fallout. With embedded insurance, insurers would handle payouts directly, relieving airlines of the burden of being the first point of blame.

For passengers, the biggest advantage of an inbuilt system is certainty, according to experts.

When every ticket, domestic or international, comes bundled with basic insurance, travellers automatically receive protection for the most common risks of flying. This includes compensation for flight delays beyond a specified threshold, cancellations or missed connections, and situations involving loss, delay or damage of baggage.

For international travellers, the cover typically extends to medical emergencies, accidental injuries, loss of passport, and even emergency evacuation or repatriation.

"Had IndiGo passengers been automatically insured under such a model, many of their immediate expenses during last week’s disruption could have been covered," they said.

Costs related to hotel stays, meals, alternative bookings, cab transfers, or even the cascading consequences of missed business meetings, family events or weddings would have fallen under standard insurance policies rather than becoming out-of-pocket burdens.

They further noted, "A common misconception among passengers is that airlines will compensate them for all such expenses. In reality, airlines are only liable within DGCA’s limited framework. Inbuilt insurance removes this ambiguity by ensuring passengers deal directly with insurers—who are equipped and obligated to process these claims, rather than relying on airline staff during moments of crisis."

As reported by Moneycontrol earlier, the government is currently exploring a framework for universal, inbuilt travel insurance. The idea is to offer basic coverage at a marginal price, typically in the Rs 50-100 range for domestic flights, bundled within the ticket.

A working group under IRDAI and the Civil Aviation Ministry had examined models followed in the EU, Singapore, UAE and the US, where bundled or mandated insurance is common.

However, as mentioned above, this framework was reportedly stalled due to implementation complexities around standardising coverage, integrating insurer-airline systems, and deciding who would administer the insurance at the point of booking.

This is gaining renewed momentum after the IndiGo incident.