The aviation industry faces new insurance challenges as geopolitical tensions escalate, according to WTW.
Jared Seth, managing director of global aviation and space at the firm, emphasised that these tensions, often manifesting in “gray zone” conflicts, are reshaping risk dynamics for both insurers and insureds.
Gray zone conflicts, characterised by actions that fall short of open warfare, are becoming more prominent. These activities, including sabotage and cyber interference, are difficult to attribute directly to state actors, creating complications for aviation insurers.
Seth pointed to recent sabotage-like incidents, such as explosions at courier depots, to illustrate the sector’s exposure.
The disruption of GPS systems through spoofing or jamming presents another growing risk. Spoofing involves broadcasting false signals to mislead navigation systems, while jamming blocks GPS signals entirely. While such actions are often aimed at military targets, commercial aviation systems can also be affected if they fall within the range of these disruptions.
Although no major insurance claims have arisen from GPS-related incidents, Seth warned that proving responsibility for an aviation mishap caused by such interference would likely result in prolonged claims resolution processes. In these cases, policies such as AVS103A could come into play, allowing partial claims payments while responsibility is determined through arbitration.
Economic sanctions, particularly those targeting Russia after its invasion of Ukraine, have presented challenges for aviation insurers.
Sanctions often prohibit insurance or reinsurance for aviation goods and services associated with the sanctioned nation.
One point of contention arose from the European Union’s language banning insurance for goods “for use in Russia.” Insurers and operators faced uncertainty regarding whether the prohibition applied only to domestic Russian flights or extended to all flights into the country.
This ambiguity created operational and legal challenges, especially for airlines operating in non-sanctioned regions but insured by firms in sanction-enforcing jurisdictions. Clarification eventually came from EU authorities, but the interim uncertainty disrupted operations and strained insurer-client relationships.
The potential use of nuclear weapons, whether through direct state action or non-state terrorism, introduces unique complications for aviation insurers.
Brokers are advised to explain to their clients that policies often include automatic termination clauses in the event of a hostile nuclear detonation or the outbreak of war between major powers, such as members of the United Nations Security Council.
In gray zone conflicts, determining whether an event meets the criteria for war or hostile action can be challenging. The automatic cancellation of coverage in such scenarios could effectively ground global fleets, creating widespread disruption.
Seth noted that these risks underline the need for insurers to re-evaluate policy frameworks to address ambiguities created by gray zone activities.
Seth shared his insights on emerging gray zones following the publication of WTW’s General Aviation Insurance Market Outlook for Q4 2024.
The Q4 report expected relatively stable conditions for operators with strong loss records, despite underlying challenges. Trends observed earlier in the year, such as competitive pricing in hull and liability coverage, are expected to continue.
Overcapacity in these areas has allowed insurers to reduce rates for operators with favourable claims histories. However, coverage for excess war liabilities remains limited, resulting in modest rate increases during recent renewals.
The ongoing political instability in certain regions may lead to volatility in war risk insurance pricing and terms.
In addition, unresolved legal disputes tied to aircraft leases impacted by the Russia-Ukraine conflict and rising costs at small airfields continue to pressure the sector.
At the same time, advancements in technology, including electric vertical take-off and landing (eVTOL) aircraft, are expected to influence the sector’s insurance landscape.
As the industry moves toward 2025, WTW advises operators to engage early with brokers and demonstrate robust risk management practices to secure favourable renewal terms. These proactive measures, the firm noted, will be critical in navigating an evolving aviation insurance environment shaped by geopolitical and technological shifts.
