According to global broker WTW’s recent “General Aviation Insurance Market Review Q3 2023,” world economic events are currently the drivers of the general aviation insurance market. The report found that increasing aircraft values, inflation, the Russia/Ukraine crisis, Environmental, Social and Governance (ESG) programmes and emerging technologies are all impacting the price of insurance.
However, despite the challenges, the review found that “capacity remains healthy.”
For a local perspective on aviation insurance challenges in Australia and New Zealand, Insurance Business reached out to Sterling Insurance, an underwriting agency specialising in aviation insurance and airport liability.
Learn what is an underwriting agency in this article.
IB started by asking Sterling’s director Tony Parington (pictured above), what he sees as the current challenges?
“Consistent pricing to sustain profitability,” said Sydney-based Parington. “There is always a balance between market share, premium pool and losses/expenses.”
He said the hard market had both driven and demonstrated “the benefits of coinsurance to help manage claim losses versus exposure.” However, Parington said the recent COVID-19 pandemic also played into aviation issues by reducing full flying exposures due to the number of grounded aircraft.
He suggested that an array of rising costs are a big challenge for stakeholders in the aviation space, including insurers.
“Repair costs have significantly escalated due to the effects of COVID-19 and inflation,” said Parington. “Transport costs have been increasing for a long while with delays in product supply and having to source parts from overseas along with shipping damaged equipment for repairs offshore.”
He said currency exchange costs and inflation have added to these challenges.
Sterling’s firm does not offer coverages for the major airlines but he suggested the much reported expense of airfares in Australia could start to have a positive impact on his agency.
“Logically, there could be a bit more private charter work for us to insure,” he said.
In an interview with IB last year, John Rooley, CEO of Willis Towers Watson’s (WTW) Global Aerospace division, was very clear about what he saw as the biggest risk facing the aviation industry.
“It’s climate, climate and climate to be honest. It’s such a big issue,” said London-based Rooley.
Four years ago, WTW formed the Airport Risk Community (ARC) to help manage the airport risk landscape by connecting industry professionals and facilitate knowledge and data sharing.
Parington said his insurance offerings and risk management haven’t changed as a direct result of climate concerns.
“Typically, we are reactive and see no real changes because the aviation industry is highly regulated, both locally and globally with set standards and authorities,” he said.
One section of WTW’s aviation insurance market update looked at emerging technologies.
“There is also an increased focus on sustainable aviation initiatives and products such as sustainable aviation fuel (SAF) and electric vertical take-off and landing (eVTOL) vehicles,” said the report.
However, from an insurance perspective, WTW said SAF “is unlikely to present a significant hurdle given that it is in the main a modification to existing fuel types.”
eVTOL, said the report, “is causing more discussions, but the insurance sector is adept at supporting new forms of aviation through the market as long as their testing and safety regime is transparent and well documented.”
The review also discussed the impact of aviation claims apart from those connected to the Russia-Ukraine war.
“Towards the end of 2022, the aviation reinsurance markets saw substantial increases to the Boeing Max losses,” said the report. The WTW update said “the majority of these claims will flow through into the reinsurance market because the retained aspects of the claims have already absorbed the direct insurance proportion.”
The update said the the size of the claim means that they “will inevitably impact all sub-sectors of aviation insurance.”
Despite the challenges, WTW found that general aviation market capacity has increased.
The update reported that this increase is “driven by fresh insurers looking to capture market share, and existing insurers looking to maintain their positions.”
As a result, in the hull and liabilities market, “capacity and competition,” said the report, has outweighed any negative impact upon pricing from the Ukraine war and also the Boeing Max losses.
However, as flight activity increases, the report said, across the market, loss ratios “may” tip from positive to negative.
Are you a stakeholder in the aviation insurance space? What challenges are you facing? Please tell us below.
