The aviation insurance market has been beset by high winds in recent years, with the impact of geopolitical risks on the sector increasing under the spotlight as these concerns continue to escalate.
Offering his perspective on what’s shaping the Hull All Risks segment of the market today, HIVE Underwriting CUO Bruce Carman (pictured) highlighted that it’s seeing an oversupply of capacity, coupled with rising reinsurance pricing and increasing attritional losses. He added that this confluence is putting pressure on profit margins and creating a highly competitive market environment.
“In the Hull War sector, meanwhile, there is a significant reliance on data to justify current pricing levels, which many argue are inadequate,” he said. “Leadership ambitions are still hampering any substantial rate improvements. The reinsurance market has responded to consecutive loss-making years by hiking rates and increasing attachment points.
“This has widened the gap between current direct pricing levels and sustainable rates. Meanwhile, the ongoing Russia-Ukraine conflict has cast a shadow of uncertainty over the market, with stakeholders cautiously monitoring developments.”
Outlining what’s behind these conditions, Carman said that for Hull All Risks, the market has seen strong recent performance, but this has unfortunately led to some complacency among leaders, who in some cases are prioritising market share over disciplined pricing. Rising reinsurance costs are putting additional pressure on margins.
However, he said, there is a positive momentum towards embracing digital change and technological advancements that promise to enhance efficiency and accuracy in underwriting and claims processing. The challenge lies in overcoming the cautious uptake among industry leaders, who need to recognise and champion these innovations to stay competitive and sustainable.
“In the Hull War sector,” he said, “while leadership has been hesitant to embrace change, there is a growing recognition of the need to integrate advanced data analytics and digital tools to better assess risks and price policies appropriately.
“The market is slowly but steadily moving towards adopting these technological advances, and those who lead this transformation will likely gain a significant competitive edge. The industry is on the brink of a digital revolution, and proactive engagement from leaders will be crucial to fully realise the potential benefits.”
Assessing how these conditions are impacting the relationship between brokers and carriers across the Hull All Risks domain, Carman noted that brokers are cognisant of the prevailing buyer’s market but remain acutely aware of the uncertain future. Facilitisation is emerging as a key focus for brokers, who are trying to navigate this unpredictable landscape, he said, and programme management is a tool in their toolkit that is growing in significance.
He added that for Hull War, the relationship remains robust, yet brokers yearn for consistency from underwriters. In recent years, he said, brokers have prepared for and explained necessary rate increases, only to see the market undermine itself at renewals. The influx of new, short-term capacity is likely as frustrating for diligent brokers as it is for underwriters.
Expounding on the question of capacity and distribution challenges, he emphasised that for Hull War, the primary challenge lies in the market’s reaction to developments in the Russia-Ukraine conflict. Moreover, he said, the lack of consistent and sustained improvements in distribution continues to inflate costs in a market already strained.
Carman warned that: “There is a risk of a hasty shift to a Direct-to-Consumer (DTC) model, as seen in other industries, where traditional distribution channels may not be adding sufficient value.”
Amid these concerns, there are some opportunities. In Hub All Risks, he said, opportunities are sporadic and typically arise when the market offers a multi-product solution (e.g., HAR, HW, XS52). Beyond that, significant opportunities lie in the anticipated market correction. Meanwhile, For Hull War, the capacity cycle is showing promise.
“Although HW capacity contracted immediately following Russia’s invasion of Ukraine, it is now beginning to return,” he said. “Brokers and clients remember and value the markets that remained steadfast and provided continuous service. This is an opportunity that needs to be strategically leveraged.”
Standing back from the risks and the opportunities facing the market, Carman highlighted that while the outlook for Hull All Risks might seem somewhat pessimistic, the industry is aware of the necessary changes and there is positive momentum.
It is only right to take time and consideration before implementing new digital initiatives, he said, but to his mind, a key challenge actually lies in the reluctance to initiate these changes, leading to a potentially volatile market driven by reactive measures rather than structured approaches that are enabled through embracing better data analytics and digital platforms.
“However, in the Hull War sector, there is a more positive sentiment,” he said. “The segment remains robust as the demand for air travel persists. The focus should be on evolving the product offerings, including pricing and distribution, to better meet the needs of customers and capacity providers. As highlighted in a recent Rolls Royce financial update, the recovery of international traffic in Asia and the expansion of fleets are promising indicators for the industry.”
