AIRLINE INSURANCE PREMIUMS UP 4% BUT HIDDEN IN THE DETAIL ARE THE PASSENGER FORECASTS FOR 2010/11

Luckily for owners and operators across the globe, the aviation insurance market remains burdened with overcapacity that is keeping rates far lower than they should be. Premiums are hardening and will rise during 2011 by about 4%, nowhere near what they should be.

Losses in 2010 were once again very high, with insurers seeing approximately $2.1bn of claims, down from $2.3bn in 2009 but well above the average for the past decade of $1.5bn. The last two years have seen very high levels of claims but lower than average numbers of incidents. This does not bode well for the aviation insurance sector as the book, as it is, is unbalanced. It is hard to see the insurance market maintaining this level of capacity for much longer, thus premiums will shoot up within the next few years, is the view of most, but this will only be the case if airlines continue to merge and reduce capacity themselves.

One of the key factors, other than the values of aircraft fleet, in determining the cost of an airline’s insurance premium is the number of passengers they expect to carry. After an overall decline in passenger numbers forecast for 2009/10 renewals, 2010/11 placements showed a recovery in every region of the world, with airlines in Asia Pacific predicting the largest increase at 12%. The following information from insurance market leaders Aon Risk Solutions gives a great insight into the current thinking of airlines across the globe:

Source: Aon insurance market data

During their insurance renewals, regional airlines predicted the largest increase in passenger numbers, 28%, followed by international airlines (14%), low-cost (10%), flag (7%) and charter (7%).

Insurers paid out more in claims in 2010 than they took in premiums, although the high level of airline insurance market capacity meant that there was enough competition to suppress their premium income aspirations to only 4% where premium was rising at least 20% in 2009.