The aviation industry, and its insurers, have had to face significant challenges in recent years including the COVID-19, the energy crisis and Russia president Vladimir Putin’s invasion of Ukraine. However, aviation has rebounded well with several 2023 parameters showing ‘best ever’ safety results. This year, the volume of global air passengers is expected to hit an all-time high (+10.4% year-on-year), driven by Asia Pacific and North America. While the general outlook for the industry is positive, there are still lots of challenges to tackle, according to Allianz Commercial’s Aviation Risk, Claims and Insurance Outlook.
The aviation sector produces some of the highest value and high-profile claims across the corporate insurance sector around the world, the report noted. Analysis of more than 32,000 industry claims from 2019 - 2024 with a total value of $15bn showed that collision or crash incidents (63%) and faulty workmanship or defective products (22%) are accountable for 85% of the value. Other incidents like natural catastrophes (4%), machinery breakdown (3%) or fire (1%) account for a much smaller proportion of claims by value.
“The aviation market is in an interesting and possibly unprecedented place with the traditional market cycle having been interrupted by the impact of the pandemic and wars. The continual growth of the aviation sector will see premiums hit a 20-year high in 2024 of more than $8bn,” said Allianz commercial global head of aviation Tom Fadden. “We see a growing interest in multinational insurance, and more enquiries for international insurance placements for entire programmes 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-publicised losses and inflation pressurising bottom lines.”
Cost issues
There has been a significant increase in aircraft repair costs in recent years, driven by higher labour rates and the cost of aircraft parts, among other factors, such as inflation. The shift to next generation aircraft continues to impact claims, especially when it comes to engine disassembly and repair costs, said the report.
Furthermore, a growing shortage of aircraft mechanics may impact future claims activity. “One also cannot ignore the fact that runway excursions are trending higher in 2024 than in 2023, with at least 23 reported globally through January to May 2024. Causes include weather issues and technical problems,” said Allianz Commercial Global head of aviation claims Cristina Schoen, adding that there has also been a noticeable rise in ground handling claims at large airports worldwide.
Reaching net-zero targets
Aviation contributes around 2% of global emissions and is focused on its sustainability efforts, pledging to reach net zero by 2050. Sustainable aviation fuel continues to attract a lot of attention with mandatory targets starting to be implemented. Improvements on existing technology continue to advance apace, as do innovations. The market for eco-friendly electric vertical take-off and landing aircraft, which can transport passengers or cargo, is set to grow significantly in the future – the first insurance coverages for operational uses are likely to be placed this year, said the report. M