Extreme weather events are becoming more regular, posing a threat for the Aviation sector 

The aviation sector is facing the prospect of more extreme weather events, bringing with them more losses and disruptions for passengers and airlines, all of which is driven by climate change. 

Climate change is reshaping the role of risk in many classes of businesses, but aviation is particularly vulnerable to its effects, as demonstrated by recent events in Texas, Calgary and Dubai throughout this year. 

Joined together, these events do raise the question of whether traditional insurance policies provide adequate coverage against losses from extreme weather events, and whether parametric or non-physical business interruption solutions (NPDBI) may be required to address future risks. 

In April, Dubai Airport experienced a year and half’s worth of rain in a single day, estimated to be 160 mm (6.3 inches), disrupting the world’s busiest airport.  

Runways and roads connecting the terminals at the airport were covered in water, meaning that planes were diverted and passengers left stranded. Despite the persistent rain, the aircraft were unaffected in terms of loss or damage, but over 1,200 flights were cancelled over two days, creating revenue losses for the airlines. 

In the words of one expert, the storm was “supercharged by climate change”. 

A month later in the state of Texas, damaging winds, hail and heavy rain combined to cause further flight cancellations and damage to smaller aircraft and infrastructure at airports in Texas.  

5% of the 37,000 flights scheduled in May at North Texas airports were cancelled because of the extreme weather, according to Cirium. 

Meanwhile, hailstorms in Calgary on the 5th August, resulted in the second largest insured loss event in Canadian history, at $2.8 billion. The largest insured loss is the 2016 wildfire at Fort McMurray, at $4.5 billion 

Hail stones, the size of golf balls, hit planes at Calgary International Airport, causing one carrier, WestJet, to ground 10% of their fleets for repairs and inspections. 600 flights were cancelled, affecting 20,000 passengers, and the airport will be out of action for eighteen months, while it is repaired. 

The state of Alberta, where Calgary is located, has experienced five of the 10 costliest disasters in Canadian history, all of which have occurred since 2016. 

The global and local impacts of a changing climate - perhaps more rapidly in recent times - are somewhat unknown with respect to their impact upon severe (unusual) weather events. But it is recognised that a warmer world is more energetic, which can potentially have a material effect on all sorts of assets.   

These extreme events are often caused by sudden changes in temperature and humidity, and it is likely that in a more energetic world, these events have the propensity to become more severe. It is also worth noting that such events are occurring in areas of the world in which they were previously unheard of, As has been mentioned in a few of the examples cited by experts in this report, the real concern will be if, in time, these events become commonplace. 

With no clear loss or damage trigger, as Insurance Business Mag notes, these disruptions were uninsurable. 

However, the losses from these events would extend beyond physical or tangible losses such as damaged aircraft to more intangible losses, including revenue loss or reputational damage. A requirement that opens the door for many in the industry to start exploring parametric or NPDBI solutions to provide coverage against risks from extreme weather events. 

“While airlines traditionally being insulated from direct insurable risks, recent events have highlighted vulnerabilities that extend beyond damaged equipment to include substantial operational and revenue impacts”, said Charlotte Dubec, head of ESG, global aviation and space at WTW. 

However, whether there is a move towards other parametric or NPDBI solutions, this cannot happen in isolation alone. It needs to be combined with good effective risk management, Insurance Business Mag notes. For example, airports in areas of flood risk need to ensure that they have adequate protection and procedures in the event of a flood.  

Extreme weather events, far from being the stuff of Hollywood movies, are becoming an alarming regular occurrence in our everyday lives.