The aviation insurance industry, like other sectors, is facing a number of challenges – but some of those could be become positives for the right markets.
Mike Hansen, who was recently promoted from heading North American aviation to the global head of aviation for
Allianz Global Corporate and Specialty, said the soft market has been difficult for aviation, but as companies enhance and specify their offerings, their performance and results could become a differentiator in the market.
“From an insurance market perspective, this has been the longest soft market – pretty much 12-13 years and counting – that I have experienced in my 35 years in the business as a broker and underwriter,” Hansen said.
“While the investments made by the industry [in terms of aviation safety] have, without a doubt, improved the frequency of losses over time, the cost of repair and replacement of equipment has increased and, in an increasingly global world, the cost of settling liability claims wherever they occur continues to rise.
“The issue we face as a market is that we are barely covering the cost of the attritional claims and our own internal costs with the premium volume in the market. There is little being put in the pot for the larger or cat type events.”
So while market has been stretched, Hansen said aviation insurance clients should begin to notice changes in coverage amongst carriers – and that should separate the good from the bad.
“Over the last few years, the increase in exposures has mostly been absorbed within the existing premium base,” Hansen said. “This is not a situation that is sustainable and if we are to continue to survive as a robust, vibrant and competitive market for our clients then we need to address the premium base we trade off.
“Considering the limited size of our market compared to the wider P&C world, we offer some of the broadest and most extensive coverage in the insurance industry which we are rightly proud of – for example, a major airline has circa $2 billion of liability coverage every time an aircraft takes off – however, that is a monumental transfer of risk from our clients’ balance sheet on to ours and therefore we need to reflect that in the premiums we charge and the cost of both capital (financial and intellectual) we need to deploy to achieve this outcome.
“Market forces will obviously dictate the speed and scale of that change, but we are encouraged that clients are starting to differentiate more clearly between the leading markets who provide global footprints to meet their needs, strong balance sheets, excellent ratings and, more importantly, a strong team of people in all regions and those that may view this market more as a diversification and index play. I foresee greater dislocation in this regard which ultimately should be a positive for us as a market and for our clients.”
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