Aerospace Insurance Market: Pricing and Risk Update - Q1 2021

The aerospace insurance market was challenging in the first quarter of 2021, and will likely remain so for the near term, continuing a trend that began in the third quarter of 2018. Pricing increases have been driven, in part, by challenging insurance market conditions across all major product lines, factors involving the various aerospace subsectors, and the wider aviation insurance market. The fallout from the COVID-19 pandemic has accelerated these underlying market drivers.

Six factors driving pricing trends in aerospace insurance

Pricing trends in the aerospace sector in the first quarter of 2021 can be viewed in light of a number of factors, including:

1. Macroeconomics. Along with some sector-specific factors, the aerospace industry has been impacted by the wider trend of increasing prices across the entire (re)insurance industry.

2. Insurers’ historical and COVID-19 losses. Insurers have said that pricing increases are required in order for them to recapitalize following a series of major aerospace losses, and to reflect the impact of COVID-19 in eroding the 2020 premium base in the airline sector.

3. Loss development/deterioration. Social inflation, increased litigation, and rising liability awards — most pronounced in the US — are emerging as global issues.

4. Increased reinsurance costs. Increases in insurers 2020-2021 reinsurance premiums have increased their cost base, meaning they will look to increase their written premium through growth and/or through rate increases for existing clients.

5. Resilience to COVID-19. Business resilience to COVID-19 has varied greatly in the aerospace sector. Insurers have largely resisted requests to return premiums and/or to re-rate retrospectively.

6. Capacity. After several years of capacity contraction, we have begun to see new entrants to the aerospace insurance market, although appetite varies greatly across subclasses.

Pricing trends by aerospace subclasses

Five steps to a successful aerospace insurance renewal

1. Prepare and start early

With increased management scrutiny, underwriters are becoming more selective and asking for detailed risk information. It’s important to understand the key information that insurers will require, and to allow adequate time for negotiation.

2. Understand your priorities

In a challenging market, it’s important to know your priorities and recognise there may be a need to compromise with insurers. For example, which is more important to you: breadth of coverage, top limit of sum insured, minimising the level of self-insured retention (SIR), or the overall premium spend? Having a clear strategy in place before commencing negotiations with insurers will be helpful.

3. Respect long-term relationships, but challenge the status quo

A strong, long-term relationship with a lead insurer can help bring beneficial results at renewal. Still, it is important to understand the context of your renewal quote and whether it might be beneficial to seek alternatives based on a different structure, renewal date, and/or lead insurers. Try to build a relationship with at least one following market that could “step up” if there is an insurmountable issue with the incumbent lead.

4. Differentiate through risk management

Share with underwriters the details of risk management policies and procedures you have in place, with specific reference to how they mitigate exposures. Insurers now are particularly interested in how organisations plan to return safely to normal following COVID-19. Remember: Many policies have a risk bursary that can partially fund such projects.

5. Use Marsh Specialty’s expertise

Marsh Specialty has vast experience in the aviation insurance sector. Our specialists will work with you, providing clear, considered advice to develop an effective renewal strategy. Our data and analytics capabilities will allow you to understand your programme in the context of the wider market.

Marsh Pty Ltd (ABN 86 004 651 512, AFSL 238983) (“Marsh”) arrange this insurance and is not the insurer. The Discretionary Trust Arrangement is issued by the Trustee, JLT Group Services Pty Ltd (ABN 26 004 485 214, AFSL 417964) (“JGS”). JGS is part of the Marsh group of companies. Any advice in relation to the Discretionary Trust Arrangement is provided by JLT Risk Solutions Pty Ltd (ABN 69 009 098 864, AFSL 226827) which is a related entity of Marsh. The cover provided by the Discretionary Trust Arrangement is subject to the Trustee’s discretion and/or the relevant policy terms, conditions and exclusions. This website contains general information, does not take into account your individual objectives, financial situation or needs and may not suit your personal circumstances. For full details of the terms, conditions and limitations of the covers and before making any decision about whether to acquire a product, refer to the specific policy wordings and/or Product Disclosure Statements available from JLT Risk Solutions on request. Full information can be found in the JLT Risk Solutions Financial Services Guide.”