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Aviation insurance market in 2021: Why rates are increasing

Why global generational aviation insurance rates are rising, and three things you can do ahead of your insurance renewal.

03/05/2021 · 6 minute read

The dynamics of the global general aviation (GA) insurance market began to shift in 2018, with a trend toward increased pricing. Driven in part by the COVID-19 pandemic, rate increases for GA in the fourth quarter of 2020 typically ranged from 20% for organisations with favourable loss histories to 50% for those with poorer records, or higher if distressed.

How we landed here

1. Reduced capacity as insurers seek to reverse losses

The turn in the GA market in 2018 away from generally softer conditions — characterised by generally lower rates and more favourable coverage wordings — occurred as large insurers started to withdraw from writing aviation risks after seven consecutive years of losses.

For insureds, as insurers seek profitability, the result has been rate increases, regardless of loss history. Every client renewal since 2018 has occurred amid a reduction in both market capacity and coverage offered. Underwriters now are empowered to walk away from business that does not meet a desired risk profile.

2. Increasing frequency and cost of claims across the wider Aviation market

In 2019, the aviation insurance market experienced its worst claims year since 2001. This was significantly due to large, well-documented claims from Original Equipment Manufacturers (OEMs) in the aerospace division. As aerospace insurers often also represent GA risks, losses in one market filter through to others.

Aviation has gradually been getting safer over the last decades, a trend driven by increased technology and automation, which come at a cost. Although accidents are less frequent, those that occur are generally more costly. Couple that with the increasingly litigious nature of claimants, and the cost of claims generally climbs. The more widespread use of composite materials in airframes also pushes up repair costs significantly.

Like the wider aviation market, the GA market feels the impact of aircraft values going up and more lawsuits being filed. The GA market also has unique issues, such as the range of insureds, which includes everything from individuals owning a few small planes to farmers with crop dusters to companies with fleets of private jets. This fragmentation makes it difficult to point to clear trends driving GA claims figures.

Overall, 2020 was one of the safest years for GA in terms of fatalities. However, this must be viewed in the context of reduced exposures stemming from the COVID-19 pandemic. In 2020, there were 31 fatal accidents, killing 56 people, involving turbine helicopters, down from 54 accidents and 133 fatalities in 2019. Business jets also suffered 10 fatal accidents in 2020, one more than in 2019. Meanwhile, there were 12 fatal accidents in 2020 involving business turboprops, 10 fewer than in 2019.

3. Impact of the COVID-19 pandemic

The pandemic has almost certainly reduced exposures for GA risks, but it is not possible to tell by how much due to a general lack of tracking data on GA aircraft. Long haul international operations were the most heavily affected by the pandemic, but this is a small part of GA operations, making it likely that exposures for most operators has continued at only a slight reduction. What is certain is that the pandemic has impacted GA less than airline operations — both international and domestic.

Concern will increase as the pandemic eases and flying restarts. Human factors are the leading cause of all aviation accidents, and the restart will likely exacerbate them following a period of reduced hours. Pilots fall out of currency, and, in smaller operations, there are fewer risk management inputs to prevent rusty pilots from taking to the air. Also, aircraft sitting on the ground for prolonged periods are more likely to develop issues including:

  • A higher likelihood of failing in the air due to maintenance issues.
  • No longer being deemed ‘airworthy’.
  • Pilots losing skill over time, becoming more prone to mistakes.

Looking ahead

The combination of market rebalancing and underwriters’ fears that accidents may occur following prolonged grounding mean we expect the market will continue to be challenging. While general aviation insurance rates may continue to increase, we expect this to ease throughout 2021, subject to a stable claims environment.

As companies prepare for renewal, there are a number of strategies which may help to improve your 2021 renewal outcome, including:

1. Transition from being a tactical buyer of insurance to a strategic risk seller.

General aviation companies should look to differentiate themselves from their peers and position their risk profile as an attractive option for insurers to support. Specific information about business operations is key. For example, details on integrated safety management systems, pilot experience and recurrent training protocols are likely to be key areas of focus from insurers. A specialist insurance broker can assist in collating this information and designing a renewal strategy to build insurer confidence in an operation, foster market relationships and ultimately achieve a better renewal outcome.

2. Start the renewal process early.

Companies should develop a clear and compelling negotiation strategy based on their risk transfer priorities. The key question to consider is whether your insurance coverage program efficiently and cost effectively protects your business. By understanding this before the renewal process begins, businesses are better positioned to consider options and make informed decisions. We recommend starting the conversation and renewal process early with your broker.

3. Local support. Global reach.

Given the global nature of the general aviation insurance market, companies operating within the Pacific region should work with a specialist aviation broker who understands the local regulatory and commercial environment while having a global footprint that provides access to international insurance hubs.

To access more of our renewal tips and strategies, or if you have any questions about this article or would like to discuss your business, Marsh’s Specialty Aviation team are ready to support you wherever you are based. Contact us here.

This article and any recommendations, analysis, or advice provided by Marsh (collectively, the ‘Marsh Analysis’) are not intended to be taken as advice regarding any individual situation and should not be relied upon as such. The information contained herein is based on sources we believe reliable, but we make no representation or warranty as to its accuracy. Except as may be set forth in an agreement between you and Marsh, Marsh shall have no obligation to update the Marsh Analysis and shall have no liability to you or any other party with regard to the Marsh Analysis or to any services provided by a third party to you or Marsh. Marsh makes no representation or warranty concerning the application of policy wordings. Marsh makes no assurances regarding the availability, cost, or terms of insurance coverage. LCPA: 21/092

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