Managing risks and opportunities in recovering aviation insurance industry

Managing risks and opportunities in recovering aviation insurance industry – Allianz | Insurance Business America

Insurance News

Managing risks and opportunities in recovering aviation insurance industry – Allianz

Sector continues to navigate issues, with losses still making headlines

Insurance News

By
Kenneth Araullo

The aviation industry and its insurers have faced numerous challenges recently, including the COVID-19 pandemic, the energy crisis, and geopolitical conflicts like Russia’s war. Despite these obstacles, the sector is showing signs of recovery, with 2023 recording some of the best safety results to date.

According to Allianz Commercial’s Aviation Risk, Claims and Insurance Outlook, global air passenger numbers are expected to reach an all-time high this year, increasing by 10.4% year-on-year, primarily driven by growth in Asia-Pacific and North America.

The report highlights that aviation generates some of the most significant and high-profile claims in corporate insurance worldwide. An analysis of over 32,000 industry claims from 2019 to 2024, totaling $15 billion (€14 billion), shows that collision or crash incidents and faulty workmanship or defective products account for 85% of the total value of claims.

Other incidents, such as natural catastrophes, machinery breakdown, and fire, make up a smaller portion of claims by value.

Tom Fadden (pictured above), global head of aviation at Allianz Commercial, noted that the aviation market is in a unique position due to disruptions from the pandemic and geopolitical tensions. He stated that the continued growth of the aviation sector could see premiums reaching a 20-year high of over $8 billion in 2024.

“We see a growing interest in multinational insurance, and more enquiries for international insurance placements for entire programs across lines of business, driven by increasing geopolitical and regulatory concerns and a desire from clients for a highly managed insurance structure. Yet dark clouds continue to hover for insurers with well-publicized losses and inflation pressurizing bottom lines,” he said.

The report also discusses rising repair costs for aircraft, influenced by factors such as higher labor rates and the cost of aircraft parts. The transition to next-generation aircraft affects claims, particularly concerning engine disassembly and repair costs.

Additionally, a shortage of skilled aircraft mechanics may lead to longer repair times and higher costs, as less experienced mechanics might need to replace parts rather than repair them. There is also concern that this shortage could contribute to accidents, despite existing safety protocols.

Cristina Schoen, global head of aviation claims at Allianz Commercial, highlighted that runway excursions have increased in 2024, with at least 23 incidents reported globally from January to May.

“There has also been a noticeable rise in ground handling claims at large airports worldwide. Elsewhere, while ‘air rage’ claims have plummeted since the pandemic, we see an increase in damage claims resulting from the growing demand for helicopter trips and getaways,” Schoen said.

As the aviation industry seeks to reduce its carbon footprint, it accounts for approximately 2% of global emissions and is committed to achieving Net Zero by 2050. Sustainable Aviation Fuel (SAF) is gaining attention, with mandatory targets being implemented. Innovations in eco-friendly technologies, such as electric vertical take-off and landing (eVTOL) aircraft, are progressing, with the first insurance coverage for operational use expected soon.

Additionally, the European Union’s Corporate Sustainability Reporting Directive (CSRD) and similar regulations worldwide will require companies to disclose detailed information on their environmental, social, and governance (ESG) performance.

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