The International Union of Aerospace Insurers (IUAI) is exploring the idea of a global government-backed insurance pool to cover future aviation business interruption (BI) losses from catastrophic events such as a pandemic.
The Federation of European Risk Management Association (Ferma) has not specifically backed the move. But it told CRE it supports efforts to deliver more capacity for BI catastrophic risks and this needs the public and private sectors to work towards joint solutions.
The IUAI said that 95% of the world’s aviation fleet was grounded at the height of the pandemic and airlines have incurred about $500bn of lost revenue caused by more than a 50% fall in passenger numbers.
But like many other sectors, standard aviation BI polices do not cover insureds from losses stemming from Covid-19 and other pandemics.
The IUAI told CRE it has had internal discussions within its executive committee and Airlines Study Group to explore ways the (re)insurance sector could support the aviation industry during post-pandemic rebuilding and against future catastrophic events.
One solution put forward, and which first came to light in the Asia Insurance Review, is a government-backed global pool.
Dzung Nguyen Tu, who has recently been appointed to the IUAI’s executive committee and is global chief underwriting officer for aviation and space at AXA XL, said: “Airlines’ loss of revenue linked to Covid-19 business interruption were not covered under standard aviation policies. Although the aviation insurance community agrees that covering a pandemic could not have been envisaged, we are looking at the concept of developing a global pool to provide funding for airlines in circumstances where further catastrophic business interruption events occur.”
Mr Nguyen Tu said a suitable method for funding the scheme would need to be found, involving insurers, reinsurers and travellers, with support from governments.
“At this stage, this is still very much a discussion at IUAI and at national level with the relevant insurance associations. This is an ambitious project. It would need the support and engagement of governments to endorse the plan and act as backstops,” he said.
IUAI’s secretary general Neil Smith told CRE the scheme would also need the support of regulators globally.
He stressed that are “significant challenges to getting any traction” for the idea. But he said the IUAI’s role is to provide a forum to explore these ideas with its members and industry stakeholders, while also acting as a platform to develop ideas with governments and regulators if they gain general support.
Aviation insurance brokers have also been exploring a pooling concept and the IUAI wants to work alongside such interested parties to develop any scheme.
“Our intention would be, if we get some consensus from the membership that this idea has real potential, that further work would need to be progressed alongside the broking community,” said Mr Smith.
Ferma president Dirk Wegener said the federation cannot comment specifically on the aviation BI pool proposals that are in very early stages. But he said Ferma is in favour of public-private partnerships for pandemics and other systemic risks.
“In general, we believe that more capacity is needed for business interruption losses from systemic or extreme catastrophe risks. This means bringing together resources from the public and private sectors, as Ferma has proposed to the European Commission. We also strongly argue that such schemes should recognise the contribution of risk management in individual enterprises to the calculation of their contributions to the pool,” said Mr Wegener.