If you’ve been in the aviation business or owned an aircraft in the past couple of years, it is no secret that the aviation insurance industry has been in a challenging market. Marked by increasing premiums, more strict underwriting, and higher training requirements, aviation insurance has been frustrating to many. In my market update in 2020, we outlined a number of reasons that the market was hardening. Insurers faced the fact that increasing premiums and lowering losses were the only viable options to get the aviation insurance market healthy. For more information, you can visit that article here: https://aerisinsurance.com/aviation-insurance- market-update-spring-2020/
Since then, we’ve had a number of additional challenges that have further affected the market. This has resulted in a lack of competition in the market. Carriers simply aren’t interested in competing with one another by driving down premium. Unless there is a new purchase or a withdrawal of an insurance company from a market, most insurance companies are focusing their efforts on keeping their current business. There are, however, two glaring issues, that are providing the biggest impact on the market in 2021: Covid-19 and the Boeing 737-Max losses.
Covid-19 and its accompanying travel restrictions have created a number of challenges for the aviation insurance market. While general aviation has seen an uptick in business in several areas, the commercial airline market has seen countless aircraft grounded and revenue passenger miles slashed to significant lows. Grounded aircraft and fewer revenue passenger miles have led to significantly lower incoming premium than anticipated in the aviation insurance market.
The airlines do provide a significant amount of the premium base contributing to the required capitalization of the aviation insurance industry. With less airline premium revenue for insurers, there are fewer premium dollars to pay the ongoing claims and prepare for future claims. This results in the need for insurers to continue to collect increased premiums from their other insureds. Several insurance company executives have reported that the total worldwide aviation insurance premiums in 2019 were nearly $2 Billion but estimate that the total 2020 premium dollars were down about 25 percent due to both a decrease in numbers of aircraft being insured and premium credits returned based on the decreased exposure of aircraft sitting on the ground rather than flying passengers. A rapid recovery of airline travel would help improve the situation.
The second major issue is the fallout from the Boeing 737-Max losses. It has now been widely reported that the combination of the Lion Air, and Egyptian Air crashes and the ongoing grounding claims Boeing has had to pay for parked airlines, insurers are now expected to pay more than $2 Billion in losses to settle these claims. When you consider that the worldwide annual aviation insurance premium is nearly $2 Billion, this means that these losses wiped out an entire year of collected premiums in the aviation sector of the market. The result is that the reinsurance companies that aviation insurers use to spread their risk are reportedly increasing their reinsurance costs by 50-100% over the next year. The insurance companies will have to pass on some of those increases to their insureds. You can reference the market update linked above for more information about why increased reinsurance costs impact the market.
As a result of these challenges, the aviation insurance industry is still experiencing and anticipating continued premium increases with strict underwriter and training requirements in 2021. Many in the industry do hope, however, that we may be in the final stretch of the hardening market. Rates are getting to the point where they need to be for insurers to remain profitable and sustainable. The recovery of the airline industry would certainly prove helpful in that endeavor.
As of January 2021, there are still average increases of 20-30% on claims-free accounts across the majority of the market. Pleasure and Business Use pistons may or may not see that level of an increase. Ag Aviation insurance renewals are currently seeing average increases closer to 8- 10% as their rates didn’t dip as low as the rest of the market. Ultimately, a lot depends on how low the risk rates were in comparison to the market. Some of the larger increases have gone to good risks who’ve been with the same carrier for a number of years who had benefited from continuous years of rates that were well below market. Property and Business Auto lines are seeing average increases of 10% for policies that are claims-free. Workers Compensation rates still vary by state.
In this challenging aviation insurance market, the best way to help mitigate these increases is to continue to have a great safety and claims record. To clearly highlight your safety and training programs that exceed standards. Demonstrate loss mitigation measures that have been taken to improve your business’s risk profile. Be sure to clearly communicate these items to your aviation insurance broker and provide timely and accurate updates when your policy comes up for renewal.
For additional information or assistance please contact Aeris Insurance Solutions at 844-422- 0023 or email us at info@aerisinsurance.com.
