High risk operations won’t fly with insurers
Insurers are seeking higher premiums after a prolonged period of poor profitability.
Competition in the Australian aviation insurance market has decreased.
Risk selection criteria have become more stringent.
A new add-on product enables zero deductible on hull insurance.
The Australian aviation insurance space has undergone a transformation in recent years, with reduced aviation insurance supply giving way to risk selectivity.
The biggest challenge for aviation insurance clients in 2019 is cost not just in terms of premium, but also in meeting insurers’ risk selection criteria.
This is a reflection of the consolidation of the aviation insurance market. In contrast to the previous five to eight years when competition drove premium prices down, insurers are pushing for higher premiums in reaction to this sustained reduction in revenue while claims costs climbed.
Both the domestic and the London markets are seeking premium rate increases. Aviation is one of the worst performing sectors for profitability for Lloyd’s of London, which notably has posted its second significant loss in the past two years. Now insurers are underwriting for profit as opposed to premium income.
Insurers that were previously chasing premium when market share was the main objective are now looking to reduce exposure to losses. The background to this is that in Australia up until 2017 there had been four major international insurers in the aviation space for about a decade, and then two withdrew from the market within six months of each other, at least partially due to sustained losses.
"Insurers that were previously chasing premium when market share was the main objective are now looking to reduce exposure to losses."
Zero deductible on hull insurance
Aviation Deductible Protection is a new add-on insurance product that provides the aircraft owner with the ability to purchase an insurance policy that reduces the hull deductible down to zero.
The subsequent lack of competition has positioned the market to increase premium rates, and also now, even with recourse to Lloyd’s of London syndicates, insurers remain more focused on having a clean book of business than getting premium in the door.
So the biggest perceived challenge that insureds and potential insureds face is cost, but in addition to that, risk selection criteria are critical: what insurers are prepared to accept in terms of aircraft type, usage and pilot experience. Owners and operators with previous loss histories are coming under greater scrutiny from insurers.
With commercial aircraft operations there’s a greater emphasis by insurers on safety management systems, training, external audits and maintenance. They are looking for initiatives which give them assurance that the operator is taking action to reduce exposure to losses. The Civil Aviation Safety Authority sets standards for pilot experience and maintenance checks, but insurers are seeking more stringent levels than the regulatory minimums.
"Aviation risk selection criteria are critical: what insurers are prepared to accept in terms of aircraft type, usage and pilot experience."
Rotor-wing aircraft are a particular area of scrutiny. Operators probably enjoyed the biggest reduction in premiums over the last decade and have also delivered the greatest numbers of losses for insurers. Now they are coming under strong pressure from premium increases given the inherently hazardous conditions helicopters are often used in: mountainous terrain, mustering, aerial survey work, agriculture and sling work.
Private aircraft owned by corporates or individuals pose a completely different kind of risk. These extremely valuable assets can be potential terrorism targets, particularly if they belong to high-profile owners. Most applicable insurance policies exclude acts or war and terrorism, but cover for these exposures is readily available as an easy add-on.
National Head of Specialism - Aviation
T: (07) 3367 5080
M: 0419 199 631