Renewals promise to be “more positive” for aviation buyers with rate rises set to moderate in time for the “all important” fourth quarter, according to Gallagher Aerospace.
Although aviation insurers have opened negotiations with increases on renewal premiums, Nigel Weyman, aerospace global executive at Gallagher Aerospace, said the average rate rise for airlines is “notably down” on previous quarters.
“This moderation is welcomed after three years of consecutive rate increases and reflects improved underwriting results,” Weyman said. He added that stronger capacity will also help soften tougher negotiations on rates.
However, premiums are likely to fluctuate widely between buyers. “The range of renewal results remains larger than normal owing to the varied situations airlines find themselves in,” Weyman said.
Many airlines are still operating below pre-pandemic levels, but insurers are also under pressure to maintain improved underwriting profitability in the sector. Premium return options, minimum premiums and actual adjusted exposures are likely to remain features of Q4 renewals, which account for 60%-70% of the year’s global airline business, Weyman said.
“Renewal negotiations will remain complex, take longer and the individual circumstances and policy specifics of each airline will influence the results,” he said.
Additional capacity should increase levels and options for most airline buyers on renewal over 2020, Weyman said, and two new entrants are also finalising plans to start aviation underwriting.
As the aviation sector returns to the skies, Convex Insurance’s Mike Hansen, head of aerospace, said the disruption caused by the pandemic has presented a catalyst for more fundamental change in aviation risk and insurance, in particular the need for more creative solutions for buyers.
Writing in Gallagher Aerospace’s Plane Talking, Hansen said: “now is an optimum time to open a debate around the future of our product”, which has remained largely unchanged for over 30 years. Covid-19 exposed that the traditional process of estimating exposures at the beginning of the policy and then only adjusting after expiry “can be a flawed approach”, Hansen said.
He said the data generated by aircraft should align with advanced analytics and ranking processes that insurers should use to develop real time data-based products.
“The data, the technology and the skill sets needed all exist — all it requires now is our market’s engagement and willingness to explore the opportunities,” Hansen said. “Could we consider a more dynamic product geared to live exposures, which automatically reflects actual exposures on a monthly or quarterly basis?” he asked, which could also tie in incentives around airlines’ ESG strategies.