Dealing with some of the most high-profile and complex aviation losses in the market – from complex repairs to complete loss of aircraft – Charles Taylor Adjusting’s global team of aviation adjusters and contractors have a birds-eye view of what’s challenging the aviation industry today.
Assessing the pressures facing insurers in H1 2024, the firm’s global director of aviation, Hugh Thacker (pictured), pinpointed the ongoing increase in claims costs as one of the biggest issues facing the market. The costs involved in repairing an aircraft have increased significantly, he said, and there are several fundamental drivers for the step-change seen in pre- and post-pandemic costs.
“Firstly, although the pandemic is now behind us, its knock-on effects are still impacting the aviation industry,” he said. “Around two-thirds of the global fleet of commercial airliners was grounded due to COVID-19 – about 5,000 aircraft in Europe alone. Aircraft were parked close together and this aggregation led to an increase in losses due to weather-related incidents such as severe hail, wind and/or flooding.
“Secondly, numerous aircraft were retired from service during this time and hence we saw manufacturers reducing or even stopping the production of spare parts for these aircraft types. As lockdowns lifted and aircraft returned to service, the shortage of available parts drove up the cost of those available. It also takes longer to get hold of the parts needed, extending repair times and adding to claim costs.”
In addition, Thacker noted that the geopolitical tensions caused by Russia’s invasion of Ukraine have had a major impact on the availability of raw materials used in the aviation industry. The war has also led to a sustained increase in energy prices and inflation, something that is affecting all industry, including the aviation sector.
Finally, he said, across the international aviation market there is a global shortage of engineers, which has pushed up demand for qualified experts and increased associated labour costs by around 30% in the past five years. In the face of growing demand from an expanding global fleet, the aviation market needs to implement systemic change to develop its pipeline of future engineering talent.
“Over and above these market challenges, there has also been a number of well-publicised issues with some aircraft and engine manufacturers, which has led to many aircraft groundings,” he said. “Trying to resolve these issues has created competing demands from manufacturers, operators and repair shops for spares and engineers. This has fuelled claim costs inflation.”
Thacker highlighted that the nature of the challenges means that are likely to continue to cause concern in the medium-to-long-term – and their impact will certainly continue to be felt in H2 2024. In fact, he said, it is likely that in the short term, the market will see further cost increases due to the continued reduction of available raw materials and parts, and the ongoing and rising demand for qualified engineers.
With so many challenges facing the aviation industry today, it’s no wonder that a solution-oriented approach is being championed by key players across the insurance market. In aviation loss adjusting, Thacker noted that the use of technology and data has played a huge part in increasing the speed and accuracy of handling claims.
“For example,” he said, “in relation to baggage claims, we use a market-leading automated claims handling system, which uses specified parameters to review the presented claim data, cross reference it with the policy and, if appropriate, agree the settlement in seconds. Approximately a quarter of baggage claims are completed without any human intervention and this helps to keep a lid on costs and to resolve claims quickly.”
Scanning technology has also proved to be very useful in creating detailed three-dimensional images of damage to aircraft, he said. These images can be sent to the original equipment manufacturer, who can analyse the damage and approve repair options rather than scrapping components. This approach can allow aircraft to return to service more quickly and contain claim costs.
“We can also use scans to cross reference components with standard digital twins,” he said. “This enables the identification of damage or abnormalities and allows manufacturers or repairers to make accurate decisions regarding giving fly-on approval or not.
“When we are investigating the cause of a loss, the increased amount of technology embedded in modern aircraft means we have access to many systems that record data and provide an insight into the flight parameters prior, during and after an event. This helps us to pinpoint root causes more quickly and accurately and to detail required repairs.”
Thacker outlined how technology is also playing a large part in helping to validate claims. For example, he said, when the team is dealing with a drone loss, it can analyse the stored flight data and re-write this over other systems such as Google Earth. This allows them to confirm that the flight was being conducted correctly, legally and within the terms of the underlying insurance cover.
He added that drones are also playing an increasingly important part in accident investigation, making it possible to inspect remote accident sites and to view those that cannot be visited in person due to circumstances such as contamination.
While the underwriting community is best placed to comment on the impact these new data points are having on premiums, he said, it is clear that technology is something that has and will continue to have a “transformational impact” on the market. Artificial intelligence (AI) is a hot topic at the moment, and his team is aware that numerous organisations are investigating potential ways of incorporating AI into their placing models.
“Whether AI is something we wish to embrace, or something we should be cautious of, is a whole discussion in itself,” he said. “But we must be mindful that AI technology is already part of our everyday lives and is beginning to play an increasing number of roles within the aviation insurance market.”
