Aviation insurers seek rate increases after a tough year

The aviation insurance industry continues to seek rate rises after a difficult 2020, according to specialist reinsurance broker McGill and Partners.

“With more planes grounded than in the skies, 2020 was an unprecedented challenge for [the] aviation industry,” McGill and Partners said. “As 2021 unfolds the near-term outlook still appears bleak for many airlines.”

The combination of different efforts by governments to vaccinate their populations against COVID-19, as well as the geographically varied return of passenger demand and aircraft service, point to a recovery that remains largely uncertain, McGill and Partners said. The company’s new report focuses on the impact of COVID-19 on the aviation industry and the long-term effects of the pandemic on airlines and their customers. Highlights include:

• In 2020, the aviation industry reported losses of US$118 billion, with demand down 65.9% from 2019.
• Nearly 17,000 airliners were idled at the peak of the downturn due to the pandemic.
• In the US, trade group Airlines for America estimated that nearly 20% of airline fleets – nearly 1,000 aircraft – were in long-term storage as of October 25.
• In Q4 2020, revenues fell faster than cost.
• Forty-three (43) commercial airlines failed or suspended operations in 2020, including larger carriers.
• The International Air Transport Association warned that the industry is likely to continue losing US$5 billion to US$6 billion per month in 2021, and passenger numbers are only likely to fully recover by 2024.

“2020 was certainly a difficult year for airlines and their insurers – and it’s not over yet, as many airlines continue to exist in survival mode in 2021,” said Joe Trotti, head of aviation and aerospace for McGill and Partners. “This is despite recent news of increasing domestic passenger demand in some countries such as the US, which might suggest a recovery is beginning to take place. However, restrictions and closed borders in many countries are making timeframes for a full recovery unclear.”

Trotti said that many of the world’s largest commercial airlines have posted huge losses, and with travel restrictions still in place internationally, it’s expected that those losses will continue in 2021.

“With the challenges faced by legacy carriers, we are also seeing a disproportionate emergence of start-up airlines worldwide taking advantage of the availability of both quality aircraft at attractive rates and qualified pilots and staff who are not currently working,” he said.

Trotti said that many insurers were already struggling with the “ongoing lack of profitability of the airline class” as well as manufacturers’ grounding losses over the past several years.

“Given the magnitude of the loss, it also had an impact on the aviation reinsurance market, which began to implement price increases to the direct insurers, creating further pressure,” he said.

“The restart of operations will also pose challenges to the airlines and insurers alike,” Trotti said. “The system was not built to accommodate the unprecedented number of aircraft grounded. Airlines have worked hard to maintain their fleets in the various forms of storage. As they prepare to bring them back into service, they are working hard to ensure that both their fleets are restored to airworthiness, and that crews are prepared to get back in the air. Underwriters are taking a keen interest in understanding these plans to return to service.”

Trotti said that despite the challenges, ample capacity continues to be available from insurers.

“Broker selection is critical to the success of a renewal, as clients need to have confidence that their broker’s experience, relationships, use of analytics and innovative approach are suitably dynamic to overcome these challenges to deliver the best solution that meets individual needs and differentiates them from the crowd,” he said.