Aviation Insurance

Last year, the aviation insurance sector was unquestionably a challenging marketplace, driven by the COVID-19 pandemic and the uncertainty it presented around operations, income and a host of other factors. As we enter year two of this pandemic, there are signs of optimism but a return to normality is still some way off. From an insurance perspective, it is clear that we are set for another complicated round of negotiations in 2021.

Rates and premium trend

2020 was an extremely challenging year for the aviation industry and the insurance rating environment continued to harden even though the majority of the industry was running substantially reduced operations due to the pandemic. As 2020 concluded, we were starting to see some rate deceleration in certain segments and perhaps signs that the rating trend was stabilising. That’s not to say that rates were reducing or the overall market conditions had changed, as they hadn’t, but the average rate increase in the fourth quarter was slightly lower than recorded in the preceding months.

As the first quarter concludes, a traditionally quiet period for aviation insurance in terms of overall renewal activity, data would suggest that the underlying trends have continued into 2021. Rate increases are at a similar level to that seen in Q4 last year and this would suggest the upwards trend has stabilised. However, we must be mindful that 2021 data is limited and there remains significant variation in the results by risk and segment of operation. As renewal activity increases in the coming weeks and months we will have a far clearer picture and assessment.

How did COVID-19 impact aviation insurers in 2020?

In terms of looking at insurer results, this is not straightforward with insurers working on a year of account basis as opposed to calendar year. With the weighting of the majority of aviation renewals toward the end of the year much of what happened in 2020 in terms of claims and premiums actually impacted on the 2019 year of account for insurers. Despite a notable reduction in attritional losses there were several major losses in 2020, across the airline, general aviation and space sectors.

Several aviation insurers reported an underwriting loss on the 2019 year of account, partly as a result of their exposure to these major losses but also due to the erosion of their premium base due to COVID related returns and the adverse development of some existing claims. Increased reinsurance costs also had some impact on direct insurers. While some aviation insurers faired better than others with their results, all suffered direct and indirect impacts from the pandemic which were evident in their overall reported company results.

As the pandemic continues, how will underwriters react to 2021 renewals?

Last year was truly an unprecedented year for aviation. The general response from the aviation insurance market in 2020 to our clients situation was positive, albeit not uniform amongst the different segments with airlines receiving substantially more aid from underwriters than their aerospace manufacturing, airport and service provider colleagues. Insurance policies are structured differently in the aerospace segment which played some factor in this, as did losses. Overall, where applicable, the measures that aviation underwriters agreed to in 2020 were greatly appreciated by our clients and we must commend the market for its response, but for some clients more help was needed.

Everybody was hoping for a strong uptick in 2021, however, as the first quarter of 2021 concludes, it is clear that recovery is going to be far slower than anticipated. With this in mind, understandably clients will again be looking for a sympathetic response and assistance from the insurance market. We are confident that insurers will again be willing to listen and act appropriately on renewals where they believe there is justification, but whether this approach will be adopted across all sectors of the aerospace industry remains to be seen. As was the theme last year, all renewals are likely to take longer to complete and will be viewed on a case by case basis. Minimum premium requirements are also likely to play a key part to many of the negotiations. The actual result and outcome will continue to depend on the individual circumstances of the client, the data supplied, its insurer relationships and the strength of the broker.

Aviation insurers find themselves going into the 2021 renewal negotiations in a better position, having achieved higher technical ratings levels in 2020 across all sectors and having introduced minimum premiums on a large portion of their business. These factors will provide greater certainty around potential future income levels which is a luxury that insurers didn’t have this time last year. In some segments, there is an argument to suggest that the high rate increases achieved by underwriters in 2020 have seen accounts reach underwriters desired technical positions in terms of rating adequacy.

While this hasn’t yet translated to target premium adequacy, as pandemic restrictions ease and operational levels increase this will organically deliver higher premium without the need for further substantial rate increases. It’s going to be a gradual process but we believe that there are now strong arguments to be made for insurers to adopt a longer-term view, and this provides a meaningful starting point for constructive negotiations in 2021. We are well prepared.


Capacity levels for most aviation risks are stable and fortunately we have not seen any withdrawals or market exits during the early months of 2021. In some segments capacity is up slightly in 2021 and additional capacity looks set to emerge in the coming months. Indeed we are aware of at least one additional start-up finalising their plans for entry into aviation and there are also some current players known to be reviewing coverages such as War and Deductible in the hope of being able to offer cover alongside their existing offerings. While this would seem good news for buyers, we must be mindful that we are still yet to fully replace the large chunk of capacity that we have lost in recent years. Looking ahead, any new capacity in 2021 will provide greater flexibility and options but ultimately until some of the current uncertainty passes we don’t anticipate any significant material dampening impact on future conditions. The easing of pandemic restrictions and speed of recovery as well as loss activity are likely to play a key role in what transpires over the coming year.

Aviation losses

We recorded a steady flow of loss activity across the airline, aerospace, space and general aviation sectors throughout the first quarter including some early major loss activity. In January we witnessed the tragic fatal loss of Sriwijaya Air flight 182. In March, a Dolijet Airbus AS350 helicopter crashed in Normandy killing the pilot and its passenger, French politician and billionaire Olivier Dassault. The first quarter also witnessed the much publicised incident involving United Airlines flight 328 which was forced to make an emergency landing following an engine fire. The United engine incident drew particular media attention as it led to the temporary grounding of all 777-model aircraft with Pratt & Whitney PW4000 engines fitted. In the space sector, insurers are also bracing themselves for a potential claim on a Sirius SMX-7 satellite which suffered an anomaly during in orbit testing.

At present it is too early to speculate on the final outcome or values in relation to any of these incidents but some of these will undoubtedly result in expensive claims. Aside from these losses, the majority of the other incidents seen during the first quarter were relatively unremarkable involving a typical selection of ground incidents and other miscellaneous aviation mishaps. There has been much speculation around claims levels during the past 12 months with the pandemic having led to substantially reduced flights and operations. Market consensus is that overall loss levels in 2020 were lower than average but that losses didn’t reduce proportionally with the level of reduction seen in operations. We know that there were more fatal airline losses in 2020 than the prior year as this is easy to track however in respect of smaller attritional claims market estimates for 2020 vary from a 30% reduction to over 50%. At this stage, claims are still filtering in from 2020 so it will be some months before we have more accurate figures and the true impact of the pandemic on claims is known.

Most insurers however look at claims on a long-term basis, typically based on rolling ten or five year numbers, and so it is important to recognise that a single ‘good’ year with lower claims is not sufficient to cause a meaningful change in market conditions/direction. It is also important to note that while losses in one segment may be lower or higher than in another, everything is linked together and the majority of aviation insurers participate across multi lines and sectors. Insurers balance income across their whole portfolio and so when a large catastrophic loss or event occurs in one sector, such as the Boeing MAX grounding, the impact will inevitably be felt across other lines of aerospace business.

On a separate point, insurers continue to scrutinise information regarding return to service plans. This is an area that underwriters now view as heightened risk and isn’t just exclusive to airlines, applying to all of the industry including airports, service companies, manufacturers etc. With insurers now looking for more information, the supply of data in relation to bringing staff back safely, revised processes, aircraft on the ground, maintenance etc. is extremely important. Our advice to buyers is to prepare this information ahead of your renewal as data can help to positively differentiate your operation as a preferred risk in the eyes of underwriters.

Looking ahead

As we look ahead, we do not expect to see too much change in market dynamics or overall underwriting approach from that witnessed in 2020. Insurers are likely to continue to seek rate increases and so we expect another year of tough renewal negotiations. In this current climate, it is more important than ever that insurance buyers work with a broker that is well resourced to absorb the additional time that renewals will take, and that has maintained strong, collaborative ties with insurers to navigate this period.

Starting the renewal process early with a clear strategy of what you want to achieve is key. Renewal negotiations remain complex and insurers want more time to review all information and are asking more questions. Buyers must be prepared to be proactive and involved throughout the process, and be ready to answer more in-depth questions from insurers. Early preparation with your broker will be hugely beneficial to achieving the best renewal outcome, and also allows for more accurate planning and budgeting of insurance costs.

The Gallagher team is well prepared. Our clients can be confident that we have the bandwidth and resources to deliver and we are ready with some creative solutions and strategies to help to minimise the impact on your business wherever we can.