The Canadian aviation insurance market was under strain long before the COVID-19 pandemic led to a catastrophic drop in air traffic and the grounding of approximately 60% of the worldwide civil aviation fleet.
The past few years have seen some turbulent conditions. Aviation insurers – mostly large international players or specialty syndicates within the Lloyd’s market – have struggled to find profitability and have had to adjust their underwriting appetites accordingly. They’ve seen poor underwriting results due to inadequate rates, higher claim costs caused by costly liability settlements and increased repair costs, and a greater frequency of attritional losses
As a result, capacity in the global aviation insurance marketplace keeps reducing. In the past six months, three key global players – MS Amlin, MSP Aviation and Antares – have all stopped writing aviation business, leaving aviation insurance brokers and end-clients on a very uncertain flight path.
“As a broker, it’s becoming more and more challenging to find support and capacity for the insured,” said Simon Tardif, senior vice president, commercial risk solutions, aviation, Aon Canada. “But at the end of the day, it’s also bringing more value to our job as a broker because we need to find solutions for clients. Sometimes, they struggle to get 100% capacity or to find the right price, so it’s our job to make sure we’re approaching everybody in the market so that we can get them the best results.”
The coronavirus pandemic has only made the Canadian aviation insurance market more challenging. More than 60% of the worldwide fleet is currently grounded, meaning there’s a huge amount of risk, and a massive amount of money sat idle at Canadian airports. With fleets grounded, the current claims count is reducing, but it’s important not to forget that insurers “still have old-year claims developing,” explained Andy Trudle, head of Starr Aviation Airline and Aerospace. He said: “From the Boeing Max issue to other claims still developing, we have to manage all of that against the incoming cash flow.”
People often refer to insurance brokers as the middlemen, but here this is really the case. “In the context of COVID-19, there are two different logics confronting each other,” Tardif told Insurance Business. “As a broker, we are here to advocate for the client, but at the same time, we also understand that the insurance market is losing money. We need to find the right balance because we don’t want to lose any more players from the market. We want insurers to be profitable so that they keep writing the business, but, from an airline perspective, the challenge is the cash. They need cash in order to maintain operations as usual, but they don’t have any.”
Steve Blakey, president and CEO of Starr Insurance Holdings, alluded to the coronavirus-related cashflow problems for both the airlines and the insurers during his keynote address at the 2020 Aviation Insurance Association (AIA) Virtual Conference in May. He estimated that total 2020 premium dollars would reduce by about 25% - down from nearly $2 billion in 2019 – because of a decrease in the number of aircraft being insured and the reduced exposure of aircraft sitting idle rather than flying passengers. He said this will undoubtedly lead to a hike in premium rates for individual aircraft owners as the industry tries to maintain its cash flow.
In that sort of situation, where end-clients are already strapped for cash, it would be only natural for airlines to want to shop around for cheaper insurance. Tardif commented: “The thing we remind our clients is that the insurers in the market have been supporting them for a long time, especially some of the major risks who’ve been with their insurers for 10-years, 20-years or longer. We are talking about long-term relationships, so our suggestion most of the time is not to break a partnership they’ve been building for many years.
“The insurers are in a tough spot so they’re trying to correct the rate. Clients have to find the right balance and consider paying a higher premium in order to keep their insurance partners for a long time. I think this is a real question of short-term perspective to save a couple of dollars versus long-term perspective of maintaining strong partnerships. Brokers need to be able to give multiple options so that clients have a choice. If there is only one option, it’s never good; it’s a take it or leave it situation and the client won’t be happy.”
