Skip to main content

General Aviation Insurance Market: Pricing and Risk Update - Q1 2021

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, the GA market transitioned further in 2020, and is poised to continue in 2021 but at a slower rate of increase.

The turn in the GA market in 2018 occurred as large insurers started to withdraw from writing aviation risks. The GA market was particularly affected as it is typically the most volatile product line for aviation insurers, and capacity at the time was already lower than in other areas.

In early 2021, the market continued to be challenging, with increases in rates and coverage restrictions seen across the board, even for those operators with strong risk profiles. Aviation, of course, is not alone as pricing has increased in most major product lines in most regions, according to Marsh’s Global Insurance Market Index.

Increased underwriter scrutiny is leading some insurers to withdraw or limit deployment of capacity. At the same time, the COVID-19 pandemic has led to more aircrafts on the ground, which in turn has improved the market’s overall loss ratio and could impact rates.

Factors behind first quarter 2021 general aviation insurance pricing trends

1. General Aviation Insurers Reduce Capacity, Seek to Reverse Losses

Since mid-2019, the amount of competitive insurance capacity has reduced, as some insurers have withdrawn from this class of business, while others have merged, generally resulting in a consolidation of available limits and impacting the competitive landscape.

In a competitive insurance market, it is difficult for aviation insurers to make a profit —something the industry has not achieved for seven consecutive years, as claims outweighed premiums. For insureds, the result has been rate increases, regardless of loss history, as insurers aim for profitability. Every client renewal since 2018 has experienced a reduction in market capacity and breadth of coverage offered, with premiums increasing in 2019. Underwriters now feel able to walk away from business that does not meet a desired risk profile. Rate increases for GA in the fourth quarter of 2020 typically ranged from 20% for clients with the best loss histories to 50% for those with poorer records, or higher if distressed.

During renewal negotiations, underwriters generally have looked to reduce the amount of GA business they are willing to write when they perceive the pricing is too low. In many cases, management has empowered them to walk away from long-term relationships. Despite premium increases, most underwriters are reducing their exposure by decreasing the overall number of risks they will insure or will look to reduce their line size and generate the same premium as expiry.

2. Lead and Support Market Firming

Lead insurance markets are committed to increasing their rates and income. Underwriters are increasingly focusing on the quality of the risk rather than weighing income as heavily as they did in the past.

Until recently, supporting markets provided additional capacity at reducing rates. Currently the trend is for all markets to seek the same rate on a placement, and in some circumstances following markets are asking for higher rates than the lead insurer.

The number of insurers prepared to lead a risk has reduced substantially. Underwriting from the ‘back of placement’ (waiting to see the leaders terms) is now more prevalent resulting in a more assertive approach from following markets who are increasingly critical to obtain required policy limits.

3. Claims Rise in the Wider Aviation Market

In 2019, the aviation insurance market experienced its worst claims year since 2001. This was primarily 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 grown safer, 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 with the increasingly litigious nature of claimants, the cost of claims has generally been climbing. The more widespread use of composite materials in airframes also pushes up repair costs significantly.

4. GA Loss Activity

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, and companies with fleets of private jets. This fragmentation makes it difficult to point to clear trends driving GA claims figures.

That said, analysing accident trends over the past decade shows a roughly constant level of fatal accidents in both fixed-wing and rotor-wing operations. Single-engine rotor-wing operations remain the riskiest part of business, closely followed by single pilot non-commercial flights, where generally safety standards do not tend to be as strictly adhered to.

Business jets have benefited from advancements in the airline sector, and have likewise seen a trend to fewer, though more severe, accidents.

5. COVID-19 Pandemic Impact

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 as a consequence of the pandemic.

In 2020, there were 31 fatal accidents, killing 56 people, involving turbine helicopters, down from 54 accidents and 133 fatalities in 2019. Reduced exposures due to COVID-19 may have helped reduce this figure.

Business jets 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. Exposures were lower; however, the pandemic affected business aviation significantly less than it did commercial aviation.

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 processes to prevent pilots who have not flown for several months from taking to the sky.   

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 and no longer being deemed ‘airworthy’.

6. Pressure on Rates

As companies look ahead to future renewals, they should pay attention to a variety of factors that will impact rates. Among those that may apply downward pressure on rates are:

  • Growth, for example, increased fleet size.
  • Good claims history.
  • Low attritional losses.
  • Long-term insurer relationships.
  • Effective risk management processes.
  • Reducing liability limits.
  • Low hull values, typically below USD 10 million.
  • Perceived low risk uses, such as business jets.

Factors that may lead to upward pressure on rates include:

  • Insurance market unprofitability.
  • Poor claims history.
  • High attritional losses.
  • Operations to/from high liability regimes.
  • Large hull values, particularly regarding rotor wing.
  • Grounding of a significant portion of a fleet.
  • Higher risk geographies.
  • Risks that are rated unprofitably.

7. Insurer Activity

As insurers increase rates, there is a higher chance that they will reach their premium income targets earlier in the year, leading to further rate increases in the fourth quarter of the year. In 2021, there are a number of additional factors on the insurer side that could add to result in markets seeking higher rates and reduced coverage, including:

  • Further M&A activity among insurers.
  • Additional insurers withdrawing from the GA market, with few significant entrants reducing capacity available.
  • Continued rise in reinsurance costs, due largely to fallout from losses in other aviation sectors.

Outlook

The combination of market rebalancing and underwriter fears of accidents following a prolonged grounding mean that we are likely to continue to see a challenging market. GA insurance rates are still increasing but the increases are appearing to hit a plateau.

Rate increases are beginning to lose momentum in 2021, although increases are still occurring across the board. If insurers reach profitability this year, it’s expected that increases will taper off, barring unforeseen circumstances.

Five steps to a successful general aviation insurance renewal

As you prepare for upcoming renewals, there are a number of strategies to undertake with your broker, including:

1. Start the process early. Underwriters are asking for more detailed information and you need the time to provide them what they are looking for.

2. Communicate with and manage the expectations of your senior executives and boards as renewal negotiations may be lengthy, and potentially more difficult.

3. Work with your broker to set a clear strategy before renewal discussions begin.

4. Involve senior leaders in the negotiation process. Don’t underestimate the value your top leaders can bring to meetings with underwriters.

5. Consider different approaches and solutions. This involves everything from alternative program structures to forming a captive insurer, reconsidering policy limits, and more.

For more information about general aviation insurance or other risk and insurance issues, please contact your Marsh Specialty advisor.