Deep Dive into Rising Rates

The only constant in life is change. About a year ago, many of our clients started to see their aviation insurance premiums increase after years of decline. Today the number one question we are asked is, “Why is my premium going up when I’ve never had a loss?” To understand the current aviation insurance market, we need to go back to 2006 when there were only seven companies competing for your business. By the beginning of 2018 there were nearly 20 aviation insurance underwriters all aggressively seeking to write general aviation (GA) business. At the same time, the demand for GA insurance declined slightly as the number of insurable aircraft and aviation businesses decreased. The result was a decade-long soft market with declining premiums and loose underwriting. Supply simply exceeded demand.

In addition to declining premiums, underwriters also abandoned traditional underwriting with regard to transitioning pilots, higher liability limits, and pilot training. Accidents continued to happen, thus carriers ended up with greater exposure to liability limits with less premium dollars to pay for losses. Aviation insurance markets that had a long history of consistent profits suddenly found themselves losing money, year after year. Since 2018, six insurance companies have ceased writing GA business due to long-term unprofitable operations. Charging less premium for higher liability limits with less training requirements is not a good recipe for underwriting profitability.  

Another area of concern for underwriters is the increasing cost of aircraft repair. Over the past decade, aircraft repair facilities have seen their labor costs increase dramatically due to the supply of A&P mechanics not keeping up with demand. Hourly shop rates have increased faster than inflation, but underwriters were charging less premium every year. Aviation premium levels were not keeping up with the cost of doing business.

Finally, underwriters are increasingly concerned with the trend of large judicial awards associated with aviation accidents. Historically, judicial awards arising from an aviation accident have always been higher than from non-aviation accidents, but in the last five years, our industry has experienced multiple $100,000,000+ awards to individuals who were injured or killed because of an aviation accident. Underwriters are just now starting to factor in the possibility, however remote, of larger than normal judicial awards.

All of the above would be enough to push premiums up but together with the continued challenges our industry faces from losses like the two recent 737 Max accidents, pressure to increase premiums is here to stay. When carriers exit the market, costs continue to increase, and premiums are at 10-year lows, it is inevitable that premiums will increase. The only constant is change.

At AssuredPartners Aerospace, our highly-respected team of 135 aviation insurance professionals has a combined level of experience that is second to none. Reach out to our experts for help navigating the changing landscape of the aviation insurance industry.