Aon Risk Solutions, the risk management business of Aon, Airline Insurance Market Outlook 2014 finds that total global lead hull and liability premium for 2013/14 airline placements was around $1.4 billion, but this was outweighed by the estimated $1.5 billion of claims for the year.
Despite this imbalance, the report suggests that prices are likely to continue to fall in the short term because the losses in 2013 were relatively few in number and involved the lowest number of fatalities since 1995. As a result, insurance capacity continues to be attracted to the sector. Competition is likely to remain healthy for 2014/15 insurance programmes, although if there are further major incidents, market conditions could begin to change. It should also be noted, that, at the time of going to press, details are still limited about the missing Malaysia Airlines flight MH370, but what is clear is that the aircraft carried more passengers than the total global number of airline fatalities in 2013, highlighting the potential for catastrophic loss that the airline sector will always represent. At this early stage of the year, we believe it is unlikely that this incident will be a catalyst for a shift in current market conditions; however should there be another large loss or a string of losses this could change.
Commenting on the report’s findings Mike Smith, Aon Risk Solution’s Aviation & Space Practice Leader said, “While it may seem like a contradiction that exposures are rising at the same time as insurance prices are falling, the introduction of the new generation aircraft a couple of years ago means that airlines of all sizes now have access to relatively modern fleet replacement options. These aircraft are more expensive but represent a risk reduction because they are safer, and prices in the insurance market reflect this. At the same time, the aviation industry continues to improve technology and working practices, again driving down the price of risk.
“As recent events have shown however, the aviation industry still represents a considerable risk, and Aon’s team of aviation experts work closely with underwriters around the world to ensure that clients have efficient and comprehensive risk management and insurance programmes that provide support in the event of an incident.”
The report also examines the continuing change in dynamics in the airline industry worldwide, highlighting the growth of the Asian fleet, which now represents nearly 40% of the global fleet (by average fleet value). Looking at average aircraft value, the Middle East continues to rise in prominence, with the average aircraft value in the region rising to around USD$77 million, more than three times the average aircraft value of the North American fleet.