AIR COURTAGE

The ups and downs of aviation insurance

Part 2: The future of the light aircraft insurance market by Chrystelle Launai of Air Courtage

Last month, we discussed the instability and apparent inconsistency of the aviation insurance industry. Based on past experience, we will now consider what we can expect for the next few years.

Of course, I would like to tell you that I have the answer – but the truth is that I don’t, nobody does. However, my little crystal ball suggests that we are heading towards a rationalisation of the market, with fewer of the ups and downs as described in Part 1.

I wouldn’t bet my life on it but we do have some interesting clues to anticipate some of the trends in respect of covers, premiums and services.

More restrictive cover

Insurers used to give very extensive cover for some ancillary risks, either because they were a most improbable occurrence, or because although they were quite ‘claim active’, very small sums were at stake.

They now tend to focus on their core activity, which consists of covering damages in accordance with one of the main basics of risk management – ‘do not transfer a risk which will be more costeffective to retain’.

Three-digit hull damages and ancillary risks are typically the claims for which handling costs could amount to up to five times the cost of the indemnity itself, generating a negative impact on the global results and therefore on the premiums for everybody. So, today we are certainly heading towards a trend of more retention of smaller risks, higher deductibles, and fewer non-aviation ancillary covers.

The insurers would also tend to encourage lower liability limits. The higher layers of liability insurance have always been cheaper than the first layers, as they are meant to be less exposed, and they still are of course, but to a lesser extent.

Claims trends as a key factor of premium level

of claims and severity of claims. On one hand, thanks to the valuable job performed by organisations such as the LAA, the CAA and GASCo to ensure and encourage optimum safety by focusing on prevention and training, and to an increasing reliability of the aircraft, frequency of claims is fortunately reducing through the decades.

On the other hand, aircraft are ever more being equipped with high technology tools and expensive avionics, which leads to increased hull claim amounts. More importantly, the litigious nature of today’s society has led to a significant increase of severity as far as liability claims are concerned.

Average indemnity for bodily injuries has evolved exponentially in the last decades, and although most claims are hull damages only, potential maximum loss in respect of liability coverage is what really worries the insurers. Insurers feel more comfortable with hull risks where loss amounts are pretty much under control.

YES to the digitalisation, but NO to dehumanisation!

We live in an accelerated world where time and effectiveness are crucial. You, as insureds, are rightly expecting to be able to apply for a quote at any time, and to get a swift reply from us.

The insurers are also expecting utmost handling efficiency from us, because new technologies enable us to provide this, and it is obviously something they need to substantially reduce their workload for smaller aviation accounts and thus make this sector of the business sustainable.

Digitalisation is therefore part of the answer to both quality of service and control of prices.

However, your insurance coverage and advisory requirements as aircraft owners or operators, are much more heterogeneous than those related to the mass insurance markets. Thus, for this kind of policy, we do not believe in full digitalisation and lack of interpersonal communication. Besides, the feedback we get from you when we meet at the airshows confirms that you don’t want to talk exclusively to machines, and you appreciate personalised advice and attention.

From our side, it is also very important to listen to your specific needs. Thanks to this interaction, we have been able to continuously improve our products and services.

As a conclusion, we are more than happy to let the computer do what it does best, and we will continue to do the rest!

Supporting the future of light aviation

Part of our role as brokers, especially in the current adverse climate, is to arouse the insurer’s interest by addressing their concerns. For this reason, we create group programmes in order to gather the risks together, thus generating a better spread.

This results in less volatility and increased premium volume, thus making the whole portfolio more attractive and viable. We also ease the insurer’s life by administrating the policies for them, within a pre-agreed framework.

To ensure affordable insurance for pilots into the future, we must not only worry about risk spread and processing efficiency, we also need to reflect on how we can reduce the insurer’s costs (other than policy handling) in a way that minimises immediate impact for you, and act in your best interest in the longer term.

Creating a positive spiral of safety by rewarding training and other safety initiatives, is a way of working towards portfolio viability. Retention of non-costeffective cover is another one.

More than ever, group programmes for private owners make good sense and help protect the future of light aviation. And even more so, together we are stronger! ■