The airline insurance market will face rising claims soon, says a new report.

The airline insurance market will face rising claims soon, says a new report

The airline insurance market is facing rising claims soon despite experiencing a benign renewal season, according to a new outlook report by Willis Towers Watson (WTW). 

At the heart of the report is the view that the cost of insurance claims is steadily rising, a rise driven by three key factors.  

Firstly, the value of aircraft is rising, as more carbon fibre is used, in addition to more technology being deployed in the manufacturing of the aircraft. Therefore, this increases the overall costs of any repairs to aircraft from a loss event, whether major or small. 

Secondly, the global appetite for air travel has recovered well from the COVID-19 pandemic, with passenger numbers showing a healthy rise and returning to near pre-pandemic levels. This increased volume, the report argues, is creating more loss events. Similarly, average loss values are creeping upwards, boosted by rising social and financial inflation. 

Finally, in the wake of the 2019 Boeing 737 MAX grounding, claims have exceeded $3 billion, the bulk of which will end up with reinsurers due to the structure of reinsurance treaties.  

The Alaskan Airlines event concluded with a limited liability claim. 

The war in Ukraine, which approaches its two-year anniversary on the 24th February, has had a significant impact on the aviation industry. Following the invasion, numerous sanctions and flight bans were imposed on both Russia and Ukraine. Many western-owned aircraft were trapped in both countries. Aircraft in Russia were ultimately expropriated by the Russian Government. 

Following numerous and complex negotiations between lessors and insurers, many lessors have secured payment for seized aircraft in Russia, but more is needed to be negotiated, the report acknowledges. 


Reinsurance Worries 

This combination of factors has led to many aviation reinsurers seeking to balance their books where they can. The most obvious consequence is the steady rise in the price of reinsurance for aviation reinsurers. 

Similarly, as the report highlights, the retentions that insurers must absorb before they can collect on reinsurance is increasing. Certain sub-limited coverages have been reduced to lower levels. 

The steady increase in the cost of claims has led to some insurers moving away from offering retrocession reinsurance. 

The report also notes a more active recruitment environment, with more staff taken on to manage additional workload due to the complexity of placing insurance programmes now. 

While the short-term picture for the airline market is relatively benign, the long-term picture appears more troublesome. The report paints a picture of rising reinsurance and retrocession costs, and rising claims coupled with falling income. 

Post Date: 08/02/2024

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