The US passed a law mandating Airlines to refund tickets in the event of cancellations, delays and lost baggages. These new risks for the Airlines are a huge opportunity for Insurance firms. I envision an insurance product sold to Airlines to cover the refunds in these events. This would help spread the risk between airlines and make the costs more predictable for the airline (regular premiums). The premiums will most likely be a percentage of tickets fares. Although costs would certainly vary by carrier, airport, season, time, airplane, etc, I imagine these would be computed and then averaged out to charge a flat rate on all tickets to a carrier, based on their historic flight data. Would airlines simply build this into the ticket price? Most certainly. But, I venture people would mind the price hike far less than the absolute relief of getting a hassle free refund when things go south. All in all, it’s a very interesting application of Society of Actuaries ‘ motto: Risk is Opportunity.
Rare win for the DOT