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Winds of Change Create Challenges and Opportunities in the Aviation Insurance Market

Rates had begun to plateau after four years of consistent rises, but recurring losses due to hail and wind damage to stationary aircrafts in 2020 continue to stifle rate relief.
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winds of change create challenges and opportunities in the aviation insurance market

Global revenue for the airline industry in 2022 is projected to reach 71% of pre-COVID-19 levels, with projected revenue for the year reaching an estimated $475 billion, according to Bain & Company. Driven by rapidly returning passengers looking to travel, the industry appears to be on the path to a comeback.

With the easing of COVID-19 restrictions, the number of passengers looking to take to the skies has soared. And while this may be seen as a hopeful turnaround for an industry that has been hugely impacted by the coronavirus pandemic, the summer months were unforgiving with the unending negative press about the industry.

For aviation insurance buyers, the market seems just as challenging. “We saw the losses of several years ago settle down at the beginning of this year," says Shan Rogers, director, national aviation practice, RT Specialty. “But then the next impact was the Russian invasion of Ukraine and the Russian seizure of between $12 to $15 billion of foreign-owned aircraft that were being leased to Russia."

Rates had begun to plateau after four years of consistent rises. However, recurring losses due to hail and wind damage to stationary aircrafts in 2020, causing $125 million in insured damage, continue to stifle rate relief.

Yet, while the aviation industry saw COVID-19-related losses of over $200 billion—wiping out over nine years of industry profits, according to the International Air Transport Association (IATA)—other areas of the aviation industry excelled.

“While international travel and charter operations declined, domestic charter flights maintained their levels and even surged with aircraft purchases outpacing supply," says Brian Ackland, vice president and central region manager, aviation insurance, AXA XL. “Ultimately, the pandemic seems to have brought new charter customers and aircraft owners for an overall positive impact." 

Echoing this, “as COVID-19 went on and people started figuring out they could still do things like fly, but do it in a better way, we saw a rush of people wanting to buy jets, turboprops and other plane types to carry them and their family from point A to point B," Rogers says. “For the first time since I've been doing this, I actually saw hull values of aircraft go up on an annual basis because so much demand was created for these aircrafts being purchased."

“Nevertheless, the aviation industry is set to face challenging renewals with increasing rates and stricter underwriting guidelines due to rising exposures and the war in Ukraine," Rogers adds.

“The industry continues to see tightening on risk selection and insureds are seeing regular and predictable premium increases on nearly all aerospace risks," Ackland confirms, noting that “the reduction of ancillary coverages seems to be stabilized, but increased deductibles and increased pricing for historically higher loss category risk segments, such as charter and owner flown turbine aircraft and aviation commercial general liability, continue." Additionally, “increasing repair costs, parts availability and social inflation also continue to create pressure on rating, deductibles and limit offerings," Ackland says.

Agents can ensure they add the most value for their aviation clients by going back to “insurance 101," Rogers says. “Get to know what the client's needs are, make sure they have the coverages they need and don't have the coverages they don't need."

To adhere to tight underwriting guidelines, agents should “submit and articulate risks clearly and concisely; be honest with the underwriter and let them know both your tactic and placement goal; and work collectively with the customer and carrier to secure a policy that is a good fit for all parties involved," Ackland says.

In procuring coverage for clients, Ackland emphasizes that agents should ensure three items are reviewed in detail with every customer and underwriter on every submission and on every renewal:

1) Use. What will the aircraft be used for and under what circumstances is the insured leasing, renting or charging for the use of the aircraft?

2) Territory. Where do they fly and where might they fly?

3) Pilots. Provide pilot history forms for all pilots that are flying the aircraft and provide individuals' names on the policy.

Lastly, when presenting a risk to an underwriter, agents should be aware that “a lot of carriers now use pilot training as their No. 1 means of getting a good rate," Rogers adds. “What we are seeing is a lot of carriers are tightening down on the pilot training requirements."

Olivia Overman is IA content editor.

Monday, October 10, 2022
Big I Markets