General Aviation Insurance Market: Price and Risk Update

 In 2018, the dynamics of the global general aviation (GA), insurance market started to shift with an increase in pricing. The COVID-19 pandemic pushed the GA market further into transition in 2018. This trend is expected to continue in 2021, but at a slower pace.

Large insurers began to stop writing aviation risks in 2018, causing a turn in the GA market. GA was especially affected because it is the most volatile product line of aviation insurers and its capacity was already lower than other areas.

The market was still challenging in early 2021. There were increases in rates and coverage restrictions across all operators, even those with high risk profiles. According to Marsh's Global Insurance Market Index , pricing has increased across most major product lines, even for operators with high risk profiles.

Some insurers are limiting or withdrawing capacity due to increased scrutiny from underwriters. The COVID-19 pandemic, however, has seen more aircrafts on ground. This has increased the overall market's loss ratio, and could have an impact on rates.

The factors behind the first quarter 2021 general air insurance pricing trends

1. General Aviation Insurers Reduce Capacity. Seek to Reverse Losses

The amount of insurance capacity available has decreased since mid-2019. Some insurers have pulled out of this business class, while others have merged. This generally results in consolidation of limits and an impact on the competitive landscape.

It is hard for aviation insurers in a competitive market to make profits. This has been the case for seven years as claims have outstripped premiums. Insurers aim to be profitable, which has led to rate increases for insureds. Since 2018, every client renewal has seen a decrease in market capacity and a narrower range of coverage. Premiums have increased in 2019. The ability to leave business that doesn't meet their risk profile is now a reality for underwriters. In the fourth quarter 2020, rates for GA rose by 20% for clients with good loss records and 50% for those with less. Rates were higher for distressed clients.

Underwriters will often try to decrease the amount of private jet insurance business that they write during renewal negotiations if they feel the pricing is too low. Many times, management has given them the ability to end long-term relationships. Despite rising premiums, most underwriters are trying to decrease their exposure. They will either reduce the number of risks they insure or look to reduce the size of their lines and still generate the same premium at expiry.

2. Firming in the Lead and Support Markets

The leading insurance markets have committed to increasing their income and rates. As opposed to weighing income, underwriters now place more emphasis on the quality of risk.

Supporting markets were able to reduce rates until recently. The current trend is to have all markets seek the same rate for a placement. In some cases, following markets may ask for higher rates than the lead insurance.

There is a significant decrease in the number of insurance companies that are willing to take on a risk. The 'back-of-placement' approach to underwriting (waiting for the terms of the leaders) is more common. This has led to a more assertive approach by markets that are more critical to obtain the required policy limits.

3. Wider Aviation Market: Claims rise

2019 was the worst year for aviation insurance since 2001. Large, well-documented claims by original equipment manufacturers (OEMs), in the aviation division were responsible for this. Because aerospace insurers are often also representing GA risks, losses in one sector can be passed on to other markets.

The trend of increasing technology and automation has led to an increase in safety in aviation. While accidents are rarer, they are more expensive. Due to the increasing litigious nature and cost of claims, it is generally going up. Repair costs are also rising due to the increased use of composite materials for airframes.

4. GA Loss Activity

The GA market is feeling the effects of increased aircraft values and more lawsuits. There are unique issues in the GA market, including the wide range of insureds. This includes everyone from small-sized plane owners to farmers with crop dusters and large companies that own private jets. It is difficult to identify clear trends in GA claims numbers due to this fragmentation.

However, accident trends over the last decade show a steady level of fatalities in fixed-wing and helicopter operations. Single-engine rotorwing operations are still the most dangerous. Closely followed by single-pilot non-commercial flights where safety standards don't tend to be as strict.

The advancements in the aviation sector have been a boon for business jets, as well as a tendency to have fewer, but more severe, accidents.

5. Pandemic COVID-19

In terms of fatalities, 2020 was overall the most secure year for GA. This must be considered in the context that the pandemic caused a decrease in exposures.

In 2020 there were 31 fatalities ,casualties killing 56 people. This is a decrease from the 54 fatalities and 133 deaths in 2019. This may be due to COVID-19, which has reduced exposures.

In 2020, 10 business jets were involved in fatalities. This is one more than in 2019. In 2020, there were 10 fatalities in business jets, one more than in 2019. Although exposures were lower, they were significantly lower than those in 2019.

Although the pandemic almost certainly has reduced GA risk exposures, it is difficult to determine how much because there are not enough tracking data for GA aircraft. The pandemic impacted the most long haul international flights, but this is only a small portion of GA operations. It is likely that the exposures for most operators have not decreased at all. The pandemic has affected GA less than airlines operations, both domestic and international.

As the pandemic subsides, and flights resume, there will be more concern. All aviation accidents are caused by human factors. The restart of flying will likely increase their severity after a time of reduced hours. Pilots lose currency and in smaller operations, there is less risk management to stop pilots who haven't flown for several years from taking to the skies.

Aerial vehicles that are left on the ground for extended periods of time are more susceptible to problems, including the possibility of failure in the air and the loss or revocation of their 'airworthiness'.

6. Rates under Pressure

Companies should be aware of a number of factors that could impact rates as they look to the future when renewing contracts. The following factors could have a negative impact on rates:

• For example, fleet size has increased as a result of growth.
• History of good claims.
• Low attrition losses
• Long-term insurer relationships.
• Effective risk management processes.
• Reduce liability limits
• Low hull values are usually below USD 10,000,000
• Low risk use, such as business jets, is perceived.

Some factors that could lead to a rise in rates include:

• Unprofitability of the insurance market
• Poor claims history.
• High attrition losses
• Operation to/from high-liability regimes
• Large hull values, especially for rotor wings.
• Grounding of a substantial portion of a fleet
• Higher risk geographies.
• Unprofitable risks

7. Insurer Activity

Insurers increasing rates increase the likelihood that they will achieve their premium income targets earlier than usual, which could lead to additional rate increases in the fourth quarter. There are many other factors that can lead to markets in 2021 seeking lower rates and more coverage.

• Insurers continue to engage in M&A.
• Additional insurers are withdrawing from the GA Market, and there are few significant entrants to reduce capacity.
• Reinsurance costs continue to rise due to the fallout from other aviation losses.