• Exposure growth continues to escalate and could top $1 trillion by 2020
• Rate reductions have been driven by overcapacity in the insurance market
• Aviation risks are changing with cyber risks a new challenge for the industry
• In 2014, AGCS' space underwriting team insured 21 trips into space involving eight different spacecraft from all around the world
• Allianz is celebrating 100 years in the aviation insurance market
The much-improved safety environment of recent years has contributed to the fact that premiums for aviation insurance, which helps to protect the sector against a number of risks, were at their lowest level for many years, prior to the loss activity of the past two years. Premiums are still at their lowest ever when compared with exposures.
There has been a 50%+ increase in exposure since the turn of the century, driven by increasing fleet values and an increase in passenger numbers. Exposures have risen from $576bn in 2000 to $896bn in 2013 – if exposure growth continues at the same rate, it will top $1 trillion by 2020.
“Rate reductions over the past decade reflect improvements in the underlying exposure. However, reductions in the airline and aviation market in the past two years have not been driven by risk management improvements, but by overcapacity in the insurance market,” according to Josef Schweighart, Head of Aviation, Germany, AGCS.
In 1915, Allianz launched its German aviation business by offering support to the first aviation pioneers and their daredevil attempts. Skipping forward to today’s aviation pioneers, the complexity of the risks has increased dramatically. In 2014 alone, AGCS' space underwriting team, based in Paris, insured 21 trips into space involving eight different spacecraft from all around the world.
Plane crashes continue to make headlines. However, safety is of the utmost priority in the aviation industry, and has hugely improved during the jet plane era: in 1959, one million flights taking off in the USA resulted in 40 fatal accidents. Today this statistic is 0.1, according to AGCS' Global Aviation Safety Study, published in 2014. This is an enormous achievement given the disproportionate growth in air travel. In 1960, 106 million passengers took to the skies, 2014 saw airlines transport a global total of 3.3 billion people - and by 2050, this figure is expected to grow to 16 billion. "Improvements in aviation safety are thanks to advancements in technology, training and risk management, above all," says Josef Schweighart, Head of Aviation Underwriting Germany & Central Europe, AGCS.
The number of aviation insurance claims is dropping. At the same time, the size of individual loss events is increasing, and costs incurred by day-to-day, small-scale loss events are on the rise. "Higher sums insured, more costly repairs, increasing liability claims and tighter regulations don't just make aviation insurance claims more complex to process - they are becoming more and more costly as well," says Henning Haagen, Global Head of Aviation, AGCS.
New technologies and materials for airplane construction help to improve flight safety, but they also pose new weak points and can lead to potentially more expensive claims settlements. Today's planes are considerably more complex than their predecessors - a typical passenger plane is made up of 600,000 parts. Innovative composite materials are also being used more and more frequently. In the future, the aviation industry could test out revolutionary technologies designed to reduce the high financial and ecological costs of conventional fossil fuels. "The next major challenge for the aviation industry lies in finding an alternative to pure combustion engines, whilst keeping flying affordable and safe," says Schweighart.
In addition to managing growth, the threat posed by cyber risks also numbers among the top aviation topics for the next five to ten years. Almost all operational processes in this area are dependent on computer systems and data, and by extension are potentially vulnerable to cyber attacks, extortion, breaches of data protection guidelines or network crashes. Currently, cyber risks are not yet explicitly excluded from the scope of cover of aviation insurance policies. "However, the industry and its insurance partners need to develop a better understanding of this risks to prevent loss events and accumulation risks," Haagen added.
To download '100 Years of Aviation Insurance' please click on the document below
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