Aviation sector growing but challenges remain

The aviation sector will see gross written insurance premiums (GWP) hit a 20-year high in 2024 of more than $8bn, but challenges still remain, according to Allianz Commercial’s Aviation Risk, Claims and Insurance Outlook. Meanwhile, new technologies and EU regulations are driving sustainability moves towards net zero.

The report reveals that of the more than 32,000 industry claims from 2019-2024, with a total value of $15bn (€14bn), crashes and collisions account for over half the value of all claims (63%) and a third by number. Faulty workmanship or defective products accounted for 22%, while other incidents like natural catastrophes (4%), machinery breakdown (3%) or fire (1%) account for a much smaller proportion of claims by value.

“The aviation market is in an interesting and possibly unprecedented place with the traditional market cycle having been interrupted by the impact of the pandemic and wars. The continual growth of the aviation sector will see premiums hit a 20-year high in 2024 of more than $8bn,” said Tom Fadden, global head of aviation at Allianz Commercial.

He added: “We see a growing interest in multinational insurance, and more enquiries for international insurance placements for entire programmes across lines of business, driven by increasing geopolitical and regulatory concerns and a desire from clients for a highly managed insurance structure. Yet dark clouds continue to hover for insurers with well-publicised losses and inflation pressurising bottom lines.”

The report noted that there has been a significant increase in aircraft repair costs in recent years, driven by higher labour rates and the cost of aircraft parts, among other factors, such as inflation. The shift to next generation aircraft continues to impact claims, especially when it comes to engine disassembly and repair costs, and a growing shortage of aircraft mechanics may impact future claims activity, said the report.

“It may take longer to complete repairs if vendors lack manpower, or efficiency. More less-experienced mechanics on the line could mean they do not have the ability to repair a part, meaning it will need to be replaced with a new one, which typically is more costly.  An obvious concern is the shortfall ultimately leads to an accident, despite the systems of checks and balances in place in the industry,” it said.

Cristina Schoen, global head of aviation claims, Allianz Commercial, said: “One also cannot ignore the fact that runway excursions are trending higher in 2024 than in 2023, with at least 23 reported globally through January to May 2024. Causes include weather issues and technical problems. There has also been a noticeable rise in ground handling claims at large airports worldwide. Elsewhere, while ‘air rage’ claims have plummeted since the pandemic, we see an increase in damage claims resulting from the growing demand for helicopter trips and getaways.”

On the issue of sustainability and net zero targets, the Allianz Commercial report pointed out that aviation contributes around 2% of global emissions. “The lack of a silver bullet solution for decarbonisation should not take away from the exciting developments underway. Sustainable aviation fuel continues to attract a lot of attention with mandatory targets starting to be implemented. Improvements on existing technology continue to advance apace, as do innovations,” it said.

It added that the market for eco-friendly electric vertical takeoff and landing (eVTOL) aircraft, which can transport passengers or cargo, is set to grow significantly in the future, and the first insurance coverages for operational uses are likely to be placed this year.

However, Allianz Commercial said one unheralded development that could force as greater accountability as any technological advancement is the development and subsequent implications of the EU’s Corporate Sustainability Reporting Directive and similar regulations worldwide, which require companies to disclose comprehensive information on their ESG performance and impact.

“Standardised reporting may foster investor and stakeholder confidence in the industry and the best performing companies, demonstrating industry leadership in decarbonisation. Most importantly, it should improve sustainability practices across the sector. Companies will be forced into engaging with the topic by such accountability. Investment will surely follow engagement,” said Adam Tozzi, head of underwriting global tasks and processes, aviation, at Allianz Commercial.