Page 23 - Insurance Times June 2024

Current issues of Aviation Insurance: One section of WTW's aviation insurance market update
looked at emerging technologies."There is also an increased
According to global broker Willis Towers Watson (WTW) that
has been stated in their recent "General Aviation Insurance focus on sustainable aviation initiatives and products such as
Market Review Q3 2023 Report" - the world economic events sustainable aviation fuel (SAF) and electric vertical take-off and
are currently the drivers of the general aviation insurance landing (eVTOL) vehicles," stated a WTW report. However,
market. The report found that increasing aircraft values, in- from an insurance perspective, WTW opined that SAF is un-
flation, the Russia/Ukraine war crisis, Environmental, likely to present a significant hurdle given that it is in the main
Social and Governance (ESG) programs and emerging tech- a modification to existing fuel types. The insurance sector is
nologies - all are impacting the premium of current Aviation adept at supporting new forms of aviation through the mar-
ket as long as their testing and safety regime is transparent
insurance.
and well documented.
Pricing challenges are echoed in various quarters. "Consistent
pricing to sustain profitability, there is always a balance be- The WTW review also discussed the impact of aviation claims
tween market share, premium pool and losses/expenses," apart from those connected to the Russia-Ukraine war. "To-
said Sydney-based Mr. Parington, Sterling's Director. He said wards the end of 2022, the aviation reinsurance markets saw
substantial increases to the Boeing Max losses, the majority of
the hard market had both driven and demonstrated the ben-
efits of coinsurance to help manage claim losses versus expo- these claims will flow through into the reinsurance market
because the retained aspects of the claims have already ab-
sure. However, he also mentioned that earlier COVID-19
pandemic also played into aviation issues by reducing full fly- sorbed the direct insurance proportion." said the WTW report.
ing exposures due to the number of grounded aircraft. He The update said the size of the claim means that those claims
suggested that an array of rising costs is a big challenge for will inevitably impact all sub-sectors of aviation insurance.
stakeholders in the aviation space, including insurers.
Despite the challenges, WTW found that general aviation
market capacity has increased. Their update reported that
Repair costs have significantly escalated due to the effects of
COVID-19 and transport costs have been increasing for a long this increase is "driven by fresh insurers looking to capture
market share, and existing insurers looking to maintain their
while with delays in product supply and having to source parts
positions." As a result, in the hull and liabilities market, "ca-
from overseas along with shipping damaged equipment for
pacity and competition," said the report, has outweighed any
repairs offshore. He also said currency exchange costs and
inflation have added to these challenges. Parington said his negative impact upon pricing from the Ukraine war and also
insurance offerings and risk management haven't changed as the Boeing Max losses.
a direct result of climate concerns. "Typically, we are reac-
tive and see no real changes because the aviation industry is However, as flight activity increases, the report said, across
highly regulated, both locally and globally with set standards the market, the loss ratio, i.e., Incurred Claim Ratio (ICR)
and authorities," he said. "may" tip from positive to negative. The World Economic
Forum's (WEF) Global Risk Report 2022 identified climate
action failure as the most severe risk facing the world. In the
Here an important aspect is Climate Risks. Mr. John Rooley,
short term, the WEF said extreme weather is the greatest
CEO of Willis Towers Watson's (WTW) Global Aerospace divi-
threat.
sion, was very clear about what he saw as the biggest risk
facing the aviation industry. "It's climate, climate and climate
to be honest. It's such a big issue," said London-based Rooley. Surprisingly, while general aviation showed a 9.65 percent
Despite the ongoing threat of COVID-19 to the industry, average increase over the past four quarters, the Marsh re-
Rooley said climate risk has dominated Airport Risk Commu- port showed a 2.16 percent decrease for general aviation hull
nity (ARC)'s discussions. "We're at the forefront of how cli- and liability premiums in the second quarter of 2023. The
mate impacts the insurance industry," he said. "We've got report suggests that this decrease could be a result of new
some great colleagues in our climate group who help ana- entrants into the general aviation insurance market that are
lyze the future of risk and we're seeing a lot of airports and a infusing new capital and increasing capacity and competition.
If this decrease is truly the start of a trend and not a statisti-
lot of airlines looking to assess the impact of climate change
cal anomaly, it would signal welcome relief for general avia-
on their business." Four years ago, WTW formed the ARC to
help manage the airport risk landscape by connecting indus- tion operators.
try professionals and facilitate knowledge and data sharing.

22 June 2024 The Insurance Times