Sky Aviation Insurance
Understanding The Aviation Insurance Market
Looking for aviation insurance? Explore the latest trends and market insights for the aviation insurance market on our blog. Protect your aircraft today.
- April 20, 2023
- Pompano Beach, FL
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Aviation businesses and aircraft owners seeking insurance coverage have likely observed a rise in rates and stricter underwriting guidelines. This may raise concerns as to why insurance rates are continuously increasing. It is important to note that the aviation insurance market has experienced notable changes in recent years.
To clarify and enhance comprehension of the aviation insurance market and its rate fluctuations, this article aims to explore the background and crucial factors affecting the aviation insurance market.
How Does the Aviation Insurance Market Work?
The aviation insurance market is similar to other insurance markets only focused on aviation.
Aircraft owners and businesses purchase aviation insurance policies for protection against losses, and premiums are pooled by insurance companies to pay out claims.
Factors Affecting The Insurance Market & Rates
Soft Market and Unsustainable Rates
Between 2006 and 2018, the aviation insurance market experienced a long period of oversupply and unsustainable low rates, commonly known as the soft market. This era was impacted by several factors, including the global financial crisis and advancements in aircraft safety technologies. The financial crisis reduced the need for insurance coverage due to the decrease in air travel, and improved aircraft safety technologies decreased the likelihood of accidents and claims.
This soft market resulted in negative consequences. Insurance companies did not charge sufficient premiums to cover claims, leading to a depletion of loss reserves. Many companies were forced to exit the market due to a lack of profitability, and the competition focused on cheap rates instead of comprehensive coverage and effective risk management.
The aviation insurance market began to harden in 2018, which marked the end of the soft market. The hardening of the market positively impacted the aviation insurance market. Insurers began charging sufficient premiums to cover claims, leading to a rise in reserves. This increased profitability and positively impacted the growth of the market. More stable competition shifted towards offering better quality insurance coverage, promoting effective risk management and loss prevention.
The hardening of the aviation insurance market created stability and sustainability. Though it has caused significant rate increases, it has also led to better insurance coverage and improved risk management practices. As new aviation technologies are developed, it is crucial for the aviation insurance market to manage emerging risks. The hard market has allowed the industry to adapt and provide effective coverage, promoting safety and security within the aviation industry.
Rising Number of Claims, Depleted Loss Reserves, and Increasing Expenses
The aviation insurance market has faced significant challenges due to the rising number of claims, which have had far-reaching implications on its profitability and sustainability. In the US, from 2016 to 2020, general aviation insurers faced a loss of $693 million, before expenses and reinsurance costs. The increase in claims can be attributed to several factors, including the complexity of aircraft, the growing number of flights and passengers, natural disasters, and war.
The rise in accidents and incidents has resulted in costly investigations and claims handling, which are a direct result of increased flights and passengers, as well as the expensive repairs required due to the complexity of aircraft technology. Additionally, natural disasters such as hurricanes, tornadoes, and wildfires have become more frequent and severe due to climate change, leading to higher reinsurance costs for aviation companies. Moreover, the industry is facing increased scrutiny and regulation regarding its carbon emissions and environmental impact, further impacting costs and profitability.
Given the crucial role of the aviation industry in the global economy, it is vital to take proactive measures to address the challenge of increasing claims. This requires a collaborative approach, with the commercial aviation and private aviation sector, regulators, and insurers working together to find solutions that ensure the safe and profitable operation of the aviation industry.
Higher Liability Awards, stricter underwriting guidelines, and the Future of aviation insurance
The aviation industry has seen an increase in liability awards for aviation losses in court, making it difficult for insurers to remain profitable. As a result, underwriting guidelines have become stricter, and insurers are scrutinizing applicants more carefully to ensure that they are not exposed to excessive risk. Insurers are also demanding more comprehensive information on pilot experience, aircraft condition, and maintenance records before approving a policy.
Furthermore, the industry has witnessed a surge in insurance rates and more stringent underwriting guidelines that have impacted both commercial and corporate aviation. One of the main reasons for the surge in insurance rates and tighter underwriting policies in corporate aviation is the increased demand, partly fueled by the COVID-19 pandemic and a booming market. Corporate aviation is a high-value segment of the industry, and it often involves older aircraft with higher flight hours. In contrast, a new aircraft with no hours, new technology, and advancements will present less risk.
While these stricter underwriting guidelines may make it more difficult for businesses to obtain insurance coverage, it is important to remember that insurance is a critical component of risk management. By providing a safety net for businesses in the event of an accident or loss, insurance allows businesses to operate with confidence and reduces the financial impact of a loss. As such, it is important for businesses to work with their insurance broker to understand the underwriting guidelines and ensure that they are in compliance with all requirements to obtain the coverage they need to operate safely and efficiently.
What does this mean for you?
It’s crucial for aircraft owners to stay informed about the current state of the aviation insurance market and updates to different insurance types, such as hull insurance and passenger liability insurance, especially at the time of renewal. Due to the industry’s challenges, including increasing claims, natural disasters, and rising expenses, insurance rates are likely to rise, potentially affecting your premium costs.
Working with a reputable aviation insurance broker is highly recommended as they can help you navigate the market and find the coverage that fits your needs and budget. A skilled broker can also help you prepare for any changes that may arise during the renewal process.
At our company, we offer a comprehensive review of your current policy to ensure that you are prepared for any potential changes at the time of renewal. Our team of experienced brokers will work closely with you to assess your coverage needs and identify any potential gaps in your policy. We are committed to helping you find the right coverage at a reasonable cost so that you can have peace of mind knowing that your aircraft is protected.
Send us an email or call us today to learn more about our services and how we can help you navigate the challenging aviation insurance market.