Many underwriters in the airline market have been losing money for the past two or three years and their tolerance of the pain is running low.
The rate reductions that have become almost expected as airline safety has improved over the past 15-plus years can no longer be taken for granted.
Losses in aerospace industry
The losses hitting underwriters today are caused by attritional claims, which can be large for modern, hi-tech planes. They may be very safe but any damage – even minor – is expensive to repair. For instance, a bird strike on an engine a few years ago would have typically cost $1 million to $2 million to repair.
Now it might be $20 million. Similarly, the routine damage caused to planes by vehicles when they are on the ground costs far more to repair. This sort of damage used to be below the deductible but now it is going through it.
Underwriters are therefore getting picky about risks. They still offer attractive rates for good risks: top among them the fast-growing, low-cost airlines that operate to high standards with a preference for narrow-bodied aircraft, with correspondingly smaller liability limits required.
Risks with high limits and/or poor loss records may experience a much tougher attitude from insurers.
Tips for buyers
There has never been a better time to crystallise partnerships with underwriters into long-term relationships. It is hard to say we are at the bottom of the market but we can be sure that if you wait for the bottom, you’ll miss it.
For more information, please contact ClientFirst@jltcanada.com.