Aviation Insurance Premiums out of control
Reducing Risks will MINIMIZE Rate Increases
SMS is an effective way to control risk
As Ms. Rosenlof explains below, a long list of endogenous (Max 8, lower flying hours) and exogenous (pandemic, weather) factors are contributing to massive aviation premium increases 25% on average. The impact for high risk operations (i.e., single-pilot aircraft operators, owner-flown aircraft, single-pilot charter operators) are being hit with even higher rates ( 50 to 150 percent). Those costs are beyond your control.
“Anything you can do to improve your proficiency as a pilot, especially relative to the aircraft you’re insured in, will factor favorably into your rates,” Merker said. “There are a lot of programs offered through the insurers themselves, or they provide preferred vendor access to upset prevention and recovery training or safety management system assistance. Attaining a higher pilot rating is also always favorable. It shows your dedication to the aircraft platform and your proficiency in flying that aircraft.”
The literature supports Mr. Merker’s recommendation:
The Business Case for Investment in Safety – A guide for executives
- Better safety culture
- Improved safety in operational environment
- Better compliance results
- Less accidents
- Less unacceptable safety incidents
- Better safety-decision making
- More safety data
- Improved safety documentation
- Better performance on inspections/audits (i.e., better interaction with oversight agencies)
- Better reputation among consumers and in media
Etc., etc., etc.
Implementation of SMS by an SME makes sound business sense. Experience with previous introduction assignment reveals strategies that effectively inculcate senior management into this safety culture. Prior work also adds credibility to the SMEs (link) in comparison to internal facilitators; the SME, likely, has seen a similar issue before and have worked through the alternatives. An outsider will likely be more objective about assessing an identified possible risk than one within the organization who may have been for the system being discussed as a possible weakness.
by Kim Rosenlof
– June 1, 2021, 9:00 AM
While the continuing global pandemic has certainly contributed to the ever-hardening aviation insurance market, the seemingly exponential rise in rates in the late 2020 and early 2021 renewal seasons can be further attributed to other factors. Among them: the rise in reinsurance market rates due to underwriters’ decreased appetite for high-risk, high-liability operations; and the need for the market to replenish coffers after several years of catastrophic claims, both within and outside aviation.
With the number of aircraft and flight hours flown significantly reduced because of the pandemic, one might have surmised that 2020 would have been a profitable year for the aviation insurance industry. …
According to data published by travel data analyst Cirium in December 2020, the global airline industry flew about half as many flights in 2020 (16.8 million) as in 2019 (33.2 million). The reduced airline activity brought about by the global pandemic had a twofold impact on aviation insurance. First, since airline premiums are generally assessed according to hours flown, the global aviation premiums collected were down by an estimated 25 percent compared with 2019 numbers. Covid-related business closures have reduced the aviation premium base even further.
Second, while aircraft and crews were sitting, claims continued to occur from weather and ground collision damage. In addition to individual incidents of hail and wind damage to sitting aircraft, airports in five U.S. states suffered direct tornado hits in spring 2020, causing upwards of $125 million in insured damage. A marked increase in hangar rash and other ground incidents as crews returned to work after a long hiatus generated millions of dollars in repair claims as the price of parts and labor rose during the pandemic.
Also, though there were fewer flights in 2020, more fatal airline losses occurred in that year (eight accidents resulting in 315 fatalities) than in 2019 (21 accidents resulting in 257 fatalities), according to the Flight Safety Foundation. High-profile accidents such as the January 2020 helicopter crash that killed nine people including basketball star Kobe Bryant and the midair collision of two small aircraft that killed eight people in July 2020 added to the loss record.
The year also saw the fallout from the Boeing 737 Max accidents, as claims from the loss of two airline hulls and hundreds of lives, plus worldwide grounding of the airframe by governmental bodies, have reportedly topped $2 billion. The annual worldwide aviation collected premium in 2019 was just under $2 billion, meaning the 737 Max crashes will likely wipe out an entire year’s worth of worldwide aviation premiums over time as claims are paid.
REINSURANCE EFFECT ON AVIATION
The worst hit may be small single-ship and single-pilot aircraft operators; the ones who made it through the pandemic squeeze are now finding themselves in an insurance conundrum where rate increases can reduce profitability to the point of nonexistence.
The “USI 2020-2021 Commercial Property & Casualty Market Outlook” noted that for owner-flown aircraft higher liability limits are scarce, pilot age and training are being scrutinized more heavily, and premium increases are in the high double digits— between 50 and 100 percent. Single-pilot charter operations are under intense underwriting scrutiny and limits have been drastically reduced. Rotorcraft operators have been particularly hard hit with rate increases of 50 to 150 percent, depending on loss history. Large fleets of both fixed- and rotary-winged aircraft with a history of losses are requiring layered insurance programs where multiple insurers each assume a portion of the risk.
David Merker, region manager of aerospace in North America for Willis Towers Watson, says that pilots and operators can improve their rate situation through various safety-related initiatives, including participating in the FAA Wings program, increasing make and model time, and engaging in simulator-based training. “Anything you can do to improve your proficiency as a pilot, especially relative to the aircraft you’re insured in, will factor favorably into your rates,” Merker said. “There are a lot of programs offered through the insurers themselves, or they provide preferred vendor access to upset prevention and recovery training or safety management system assistance. Attaining a higher pilot rating is also always favorable. It shows your dedication to the aircraft platform and your proficiency in flying that aircraft.”
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