Airline insurance market braces for Q4 price rises, says WTW

Price rises for the airline insurance market seem likely during the Q4 renewal season, according to WTW. It says that while major claims have been limited in 2022, it points to attritional losses, as well as the impact of the Russia/Ukraine crisis. In its Q4 Airline insurance market renewal outlook, WTW says the Covid pandemic does not seem to have had a significant impact on either claims or insurance prices for 2022 renewals, “and while parts of Asia have yet to ease their restrictions fully, it seems that this source of claims has been controlled”. It highlights three sources of claims in 2022. “Firstly, while major claims have been limited in 2022 to date, there needs to be an allowance for attritional losses that are too small to represent major claims but still have an underlying impact on global premium requirements,” the broker says. Secondly, it notes that Russia-seized leased aircraft are likely to become constructive total losses due to irregular maintenance schedules and sanctions making the use of official parts unlikely. And finally, it says there is also the potential for further claims arising from civilian aircraft that might have been destroyed on the ground during the initial phases of the war between Russia and Ukraine. “Given the three sources of claims, there is a likelihood that overall claims on 2021/2022 airline insurance policies will be significantly higher than the long-term sector average,” says WTW. Looking at the various airline sub-markets, the broker says hull and liability renewals so far in 2022 have been relatively stable, “where airlines and their brokers have been able to prove a positive claims history, have a proactive risk management strategy and work in partnership with their insurers”. It adds: “There were exceptions, especially where airlines have been closely involved with Belarus, Russia and Ukraine, but in the main renewals have been relatively positive for clients and pressures have tended to involve restriction of coverage rather than increases in premium.” It adds that competitive pressure is likely to supress the rises in hull and liability premium. However, the price of hull war insurance will continue to rise considerably in the short to medium term as a result of limitations of coverage being imposed and reinsurance and retrocession costs rising considerably. WTW says that in the past few months, hull war rates have increased significantly. Premiums in the contingent hull war market are expected to increase substantially, particularly given the extremely low base in 2020/2021, says WTW, largely because the majority of claims relating to the seizure of aircraft assets by Russia are likely to be submitted by the leasing companies. “The magnitude of the claims that the airline sector faces on its 2022/2023 insurance programmes means that underwriters need to find a way to recoup their losses. The challenge is that any attempt to increase contingent hull war premium directly could result in lessors refusing to buy cover at increased prices. Unlike the airline community, many lessors may not be under any contractual obligation to purchase insurance, except to protect their own balance sheets,” the broker says. WTW notes that the airline insurance sector has only been relatively profitable during the last few years because of the low level of activity during the Covid-19 pandemic. “Even if the geopolitical conditions improve, underwriters will try to maintain discipline for at least a full insurance renewal cycle to ensure that their airline portfolios are balanced over the long term, particularly in the hull war market. That said, it is possible that there will be more room for negotiation in the hull and liability market,” it states.

Airline insurance market braces for Q4 price rises, says WTW

Want to read this article?

Read Next

Ferma members told AI will bring risk and reward for corporate insurance buyers

Aon’s revenues up 5% as it completes $13bn NFP deal

Warmer climate spreading risk of malaria and dengue to new regions

UN launches new net-zero insurance forum to replace NZIA

Pen extends fleet capacity deal with Zurich in Republic of Ireland

Ferma members told AI will bring risk and reward for corporate insurance buyers

Aon’s revenues up 5% as it completes $13bn NFP deal

Warmer climate spreading risk of malaria and dengue to new regions

UN launches new net-zero insurance forum to replace NZIA

Pen extends fleet capacity deal with Zurich in Republic of Ireland

Want to read this article?

Read Next

Ferma members told AI will bring risk and reward for corporate insurance buyers

Aon’s revenues up 5% as it completes $13bn NFP deal

Warmer climate spreading risk of malaria and dengue to new regions

UN launches new net-zero insurance forum to replace NZIA

Pen extends fleet capacity deal with Zurich in Republic of Ireland

Related Articles