When will conditions in the general aviation insurance market change?
With the final quarter of 2024 now well underway, general aviation clients will be asking what the likely outcome will be for their insurance renewals. To answer this question, it’s worth looking back to the sector’s last key renewal date on July 1st, a date that tends to function as a bellwether for the remainder of the year.
From a hull and liabilities perspective, general aviation organizations that renewed in July with a good loss record and fleet growth enjoyed buoyant market conditions.
As we discussed in our last update, at the time insurers were still competing to write business they deemed to be profitable and growing. This created overcapacity across the sector and contributed to competitive tensions, which tended to result in rate reductions. Even operators with minimal growth enjoyed favorable market conditions if they could present a healthy loss record and a clear strategy for risk management.
The hull war market was also showing signs of stabilizing after the rapid increases of the preceding two years. These increases were leveling out because the harder conditions had attracted new capacity to the hull war market. Political tensions have been very high in several areas throughout 2024, but from a hull war insurance perspective, prices appeared to have reached an equilibrium at the mid-point of the year.
The only market to buck the trend was aviation excess war liabilities. It is still suffering from relatively constrained capacity because of perceived unattractive risk/reward ratios and risks aggregating with similar risk types in other business lines. As a result, policies placed in July tended to be enduring nominal increases.
We expect the overall direction of the general aviation market to follow the trends laid down earlier in the year, with healthy capacity leading to positive negotiations for organizations with a good story to tell from a growth and claims perspective. Hull and liabilities look set to remain very competitive, although as ever, early engagement with your broker will enable them to make the most of the current conditions and make positive outcomes more likely.
As discussed above, given the levels of international geopolitical tension, there’s still a lot of focus on pricing in the hull war market. The recent events at Mali’s Bamako airport[1] reminded us of the need to maintain a watching brief, and exposure to geopolitical instability will be a focus for insurers’ senior management teams. Due to the potential volatility, any notable geopolitical event could see a return to previous-year pricing approaches and strict insurer discipline, particularly for general aviation organizations operating in or near perceived geopolitical hotspots.
There are two other factors that could influence the general aviation insurance market as the year ends. Firstly, the very active hurricane season in the U.S. is likely to be having an influence on the insurance markets as a whole as a result of the potential scale of the claims.
Secondly, the issues of leasing claims as a result of the crisis between Russia and Ukraine continue to loom large over the aviation industry as a whole. We discussed these in more detail during the last general aviation insurance market update, and while some of the court cases have begun, it will be some time before clarity starts to emerge.[2]
Irrespective of how these issues play out and how the market cycle turns, the best way to improve the likelihood of positive interactions with insurers is to have a clear risk management strategy that sets out the challenges that an organization faces and shows what steps are being taken to reduce the possibility of a risk becoming a claim.
WTW’s Aviation Safety Partnership (ASP), helps clients embed key safety concepts that are aligned with recognized global best-practice within a risk management framework. This can support clients when they present their risk management and insurance programs for renewal by helping insurers understand a general aviation organization’s commitment to safety and risk reduction.
The requirement to build new homes in various countries around the world is increasing land prices, which in turn is putting pressure on some smaller airfields. While the ebbs and flows of land use is not necessarily central to our remit as a general aviation insurance broker, it is worth noting that the aviation sector as a whole is suffering recruitment challenges and general aviation has a role in bringing some pilots, ground handlers and air traffic controllers through the early stages of their careers. As such, it is important for the aviation industry that general aviation continues to provide a pipeline of talent.
At the same time though, the seemingly imminent commercial arrival of several electronic vertical take-off and landing vehicles (eVTOL), coupled with the increased prevalence of drones in several sectors of the economy, as well as several hybrid and pure electric-based regional jets getting to the demonstration phase, is putting a lot of focus on how the industry will evolve over the next decade.
Our role as an insurance broker with long-standing relationships across both the general aviation industry and the insurance sector gives us a perspective on the complex, intertwined topics of risk management, insurance and safety.
The renewal negotiations at the end of 2024 will offer early indications of what we can expect in 2025, although it is likely to be more of a direction of travel rather than a solid forecast given the current situation that the aviation insurance sector finds itself in.
The cost of general aviation insurance has been stable or even fallen for organizations with a proactive approach to risk and a relatively clean loss record. This stability has been driven by a healthy level of capacity, with insurers attracted to the sector by rising premium and low claims during the early part of the decade. As we arrive at the middle of the decade, at some point, competitive pressures, increased reinsurance costs and claims inflation are likely to make the aviation sector less attractive for insurers. If they reduce their commitment to the sector, the lower capacity will mean that negotiations will become more robust for general aviation organizations.
The question at this point is when this process will begin.
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