CAPACITY SUFFERS AS ANOTHER INSURER TAKES OFF

The Australian aviation insurance market is under stress with capacity constraints, a lack of competition and a weak Australian dollar driving premiums up across the different aviation categories. Gallagher has observed year on year premium increases of between 30 and 50% for some clients and this is anticipated to rise even further in the coming 12 months.

KEY TRENDS

  • The Australian aviation insurance market is under stress with capacity constraints, lack of competition and a weak Australian dollar driving premiums up.
  • Capacity constraints seem to be largely driven by reduced competition.
  • Alternative markets available outside of QBE cater for only around 10 to 20% of the risk requiring cover.
  • It is critical that organisations start their renewal processes early and take a proactive approach to working with insurers.

The aforementioned capacity constraints seem to be largely driven by reduced competition. The withdrawal of both Allianz and AIG in 2017 leaves only two players in the market, and in August 2019, a third provider, Swiss Re Corporate Solutions, announced its intention to "review the future of its Australian aviation business" and stop writing new business for the sector. This leaves QBE and Lloyd’s as the only significant insurance providers left for the Australian aviation industry.


Compounding the issue is a reduced appetite for risk, with the alternative markets available outside of QBE catering to only around 10 to 20% of the risk requiring cover.


International options are also reflecting capacity constraints. In 2018 Lloyd’s of London imposed strict measures on its syndicates with the aim of addressing under-performance. This has subsequently put a cap on how much business insurers are able to write. Additionally some categories of the aviation industry, such as fixed wing, are facing far greater capacity restrictions than others due to their unique risk profiles.

Alternative markets are only able to cater to around 10-20% of the risk requiring cover
aviation parts turbine
aviation plane wheels

It’s also important to note that broader risks faced by the aviation industry generally are evolving and becoming more complex, which is further impacting premiums.


An increasing number of cases are being observed where directors and officers have been exposed to statutory and management liability claims resulting from aircraft accidents or cyber-attacks. While larger, more commercially established organisations are able to adequately manage these situations, these pose more of a challenge for smaller operators. As a result, we see a definite need for this sector to analyse their risk exposures beyond damage to physical assets, and work with their insurer to secure adequate and relevant cover.


The decline of the Australian dollar is also a source of pressure, with the currency tumbling to its lowest point in a decade in August 2019. As a consequence, with many aircraft types and parts priced and purchased in US dollars, clients have no choice but to increase their sums insured, further increasing the cost of their insurance.


With a difficult 12 months on the horizon for the aviation sector it is critical that organisations start their renewal processes early, and take a proactive approach to working with insurers to secure the best possible cover and avoid underinsurance.

Damian Hopper headshot

Damian Hooper

National Head of Specialism – Aviation

T: (07) 3367 5080

M: 0419 199 631

E: damian.hooper@ajg.com.au

Sources:

‘AIG bails on Australian aviation business’, Insurance News, 5 June 2017

‘Swiss Re considers aviation insurance withdrawal’, AOPA Australia, 2 September 2019

Australian dollar hits 10-year low with further downside risk forecast, Small Caps, 27 August 2019