Aviation Insurance 2010
By Stuart Hope - July 1, 2010
After three straight years of historically low premiums and greatly expanded coverage offerings, the struggle among aviation insurance companies to gain or hold market share has begun taking its toll. Last year the industry experienced one of its worst for aviation claims since 2001, and 2010 continues the trend.
These factors suggest that higher insurance rates may be looming. And just as you should have an emergency response plan to deal with the unlikely event of an accident involving your aircraft, you’d also be smart to start planning for a negative insurance scenario.
Here’s a closer look at why higher rates may be coming–and what you should do now.
At the end of 2005, there were 10 aviation insurance companies in the U.S.; by the end of 2008, there were 20. The increased competition led to a perfect buyer’s market but an unsustainable one. Of the 10 insurers that entered the field since 2006, Travelers was the first to cry uncle, announcing last October that it was exiting the aviation sector and would not renew policies that expired after January 1. AXA Insurance Company soon followed suit, saying that it would stop renewing aviation policies after January 8. And in April, International Aerospace Insurance Services was acquired by Starr Aviation and announced it would cease issuing policies on June 1.
None of these companies was in financial trouble; on the contrary, they were and still are strong and stable, but they simply decided this area of insurance was not an attractive place to put their extra capacity. Though none was a major player in aviation, their withdrawal clearly signals that the aviation insurance market is beginning to contract. For jet owners, this suggests that remaining insurers may soon be changing course toward a market characterized by higher premiums, reduced underwriting flexibility and more restrictive coverage. Exactly how quickly that might happen is unclear but signs point to a slow transition over the next two years.
One reason for this transition is the higher claims rate mentioned earlier. Business aviation had a commendable safety record last year, but the same insurers and reinsurers cover both airlines and general aviation aircraft, so poor loss experience by commercial carriers can impact the insurance environment for general aviation. And while the airlines’ fatal-accident rate has improved dramatically over the last two decades, with 2009 being one of the safest years yet, insurance claims for that year were the worst ever. Numerous major accidents–including the US Airways A320 landing in the Hudson River, the Air France A330 crash in the South Atlantic, the Yemenia Airways A310 crash near the Comoros Islands and the Colgan Air/Continental Dash 8 crash in Buffalo, N.Y.–combined to hammer the pocketbooks of aviation underwriters. Industry watchers expect 2009 losses to exceed premiums paid by more than $500 million.
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