Category Archives: Aviation

Airline Insurance Market: Slow Ascent

Hull and liability premium prices in the airline insurance market are likely to continue to rise in 2010, but the rate of increase could slow as a result of the high level of capacity that is still available, according to Aon’s Airline Insurance Market Outlook 2010. Aon says there are a number of reasons why the price rises are not likely to continue at the same rate in 2010. Firstly, while average lead hull and liability premium in the airline insurance market rose by 20 percent during 2009, taking total lead hull and liability to $1.9 billion, average annual claims over 10 years came to $1.8 billion. This means the airline insurance market’s current level is now enough to comfortably cover claims in an ordinary year, according Aon. Still as 2009 has proved, there is always the potential that there will be an extraordinary level of claims in a given year (total estimated claims for 2009 came to $2.3 billion), but overall the hard markets have now served their purpose and prices have risen to the point they need to be to ensure that total premium and average claims are roughly in balance. Proof that the markets have reached the equilibrium point comes from the fact that some underwriters that were holding back capacity in 2008 and 2009 are now being encouraged to participate on airline insurance programs, Aon notes. New capacity is also being attracted to the sector, a fairly sure sign that prices have reached the appropriate level. Equally, while 2009 was, hopefully, an exceptional year in terms of airline claims, the fact that the actual number of losses was relatively limited should mean that a smaller number of airline underwriters will have taken a hit on their airline books of business, Aon believes. Check out I.I.I. aviation facts and stats.

Aviation Loss: Terrorism Unlikely

In a recent post we discussed how aviation losses outweighed premiums in 2009, despite a relatively safe year for the airline industry last year. With the crash of Ethiopian Airlines  flight 409  early this morning into the Mediterranean Sea off Lebanon’s south coast aviation insurers appear to have been hit with their first major loss of 2010. The Boeing 737-800, en route to Addis Ababa, crashed shortly after take-off from Beirut after losing contact with airport control amid stormy weather. According to media reports, a total of 90 passengers and crew were on board, including Marla Pietton, wife of the French ambassador to Lebanon. As of yet, no survivors have been found. While it is too soon to speculate on the cause of the crash, several reports quote Lebanese President Michel Suleiman saying a terrorist attack is unlikely. “Sabotage is ruled out as of now,† he said. Others report on the stormy weather conditions in Lebanon at the time, including thunder, lightning and heavy rain. Global Reinsurance has a story on the crash, including some information on the insurance implications. It reports that 54 of those on board were Lebanese. Others on board were citizens of  various countries including Ethiopia, Britain, Canada, Russia, France, Iraq and Syria. Check out I.I.I. aviation facts and stats.

Aviation Losses Outweigh Premiums in 2009

Despite a relatively safe year for the airline industry, aviation insurers paid out an estimated $2.3 billion in total losses in 2009 – making  it the second most costly year on record. According to Aon’s January 2010 Airline Insurance Market News, the total lead hull and liability premium for 2009 was around $1.9 billion, up from $1.6 billion in 2008, but still far short of the $2.3 billion in total claims. This means 2009 is the third consecutive loss making year for aviation underwriters. However, Aon cautions readers to look beneath the headlines for the real story. With average lead hull and liability price increases of around 20 percent during 2009, the airline book of business began to look attractive again despite the high level of claims, it notes. This means that prices are likely to continue to rise in 2010, but, unless there is a major loss, the increases should slow somewhat. “Looking ahead is difficult, but the direction of the market is likely to be set by the level of claims in the early stages of 2010. If claims are average, then the level of competition in the airline insurance market should keep price increases at a manageable level. If there are major losses, capacity could hold back and the price of airline insurance could continue rising at the current rate or higher,† Aon adds. Check out I.I.I. aviation facts and stats.

Airport Security: More Questions Than Answers

After the attempted Christmas Day bombing and resulting ramp up in airport security it was with some apprehension that I headed to London’s Heathrow airport for my return flight to the U.S. this past weekend. New airport security rules were in effect for flights going to the U.S. and extra screening of passengers and hand baggage at the gate could be expected. The manual search was painstaking as every one of the more than 250 passengers was patted down and had the contents of their bags and footwear reviewed. As our flight finally departed some two hours later than its scheduled take off, I had to question the effectiveness of this risk management process. Wouldn’t the use of advanced  equipment  such as  a  body scanner or extra questioning of passengers be more relevant? There were some changes on board the aircraft too. The use of blankets and pillows by passengers during take off and landing were restricted. Also, as we approached the U.S. the in-flight video navigation system was turned off and we were told that no information on the status of our flight was available. An article in the New York Times over the weekend made the point that the extra security measures cannot be sustainable from an operational point of view on an ongoing basis. It also described practical steps taken by one airline captain who walked down the aircraft aisle before his flight left from Europe, greeting each passenger to see who wanted to make eye contact and to check that everyone was acting vaguely normal. Just yesterday Obama administration officials announced intensified screening for passengers from 14 nations who are flying to the U.S. However, for American citizens and most others not flying through these 14 nations, extra security steps will be relaxed. The shifting nature of these additional security measures and the contrasting methods taken to airport security around the world appear to suggest that no one system has the answer. And this in turn raises more questions for air passengers and airport security officials in the days and weeks ahead.

Flying While Distracted (FWD)

By now it’s old news that pilots of a Northwest flight that overshot its Minneapolis destination by 150 miles a week ago were looking at their laptops. Yesterday the Federal Aviation Administration (FAA) said it had revoked the licenses of the pilots. They have 10 days to appeal the decision to the National Transportation Safety Board (NTSB). According to a Wall Street Journal article, federal safety rules prohibit laptops in cockpits below 10,000 feet, but allow them during cruise. However, it cited a statement from Delta (now merged with Northwest) that the airline expressly forbids pilots from using laptops at any time or engaging in personal activity that could distract from flight duties. Just a few weeks ago the U.S. Department of Transport held a Distracted Driving summit which highlighted the growing dangers of driving while distracted by texting or cellphone use. The Northwest incident underscores the point that whether it’s a car, an aircraft, a train or indeed any piece of machinery or equipment, their safe operation requires the full attention on the part of the operator. Distraction is one part of the problem. An over-reliance on automation is another. An investigation into the June collision of two Washington D.C. Metrorail trains that left nine dead and about 80 injured focused at least partly on the fact that the moving train was operating in automatic mode – meaning that it was primarily controlled by a computer. The use of technology has led to safer roads, skies, and workplaces to name a few, but if computers are in control, how much attention on the part of the driver or pilot or machine operator is required? Needless to say there are growing insurance implications and potential liabilities arising from these incidents. I.I.I. president Dr. Robert Hartwig recently observed that the problem of distraction is not confined to cars but is part of a greater problem associated with “distracted equipment operation†. This is leading to an epidemic of occupational injuries and workers compensation claims, he warned.  Insurers will be monitoring this  emerging issue.

Aviation Losses Drive Market Hardening

The high value of losses and fatalities in the aviation sector has driven the airline insurance market into a far harder position so far this year, according to Aon’s Airline Insurance Market Indicators 2009/10 report. Lead hull and liability premium rose on average by nearly 20 percent between January and July 2009, and there is little sign that the position will improve during the final quarter when the majority of airline premium is placed. Despite the market hardening, as a result of the high level of claims, 2009 is likely to be the third consecutive year with little or no profit for underwriters. This means there will be significant pressure to increase prices further, Aon notes. It estimates that the cost of premium is likely to rise by at least a fifth for the rest of the year and into 2010.  From a claims point of view  2009 is set to be the most expensive year in recent airline history due to the very high number of fatalities and value of losses. Aon projects that total claims for the year could reach as high as $2.2 billion, even if there are only an average amount of claims for the rest of the year. Check out I.I.I. aviation facts and stats.

Losses Impact Aviation Rates

Airline insurance programs saw an average premium increase of more than 20 percent in July bringing the average increase for the year so far to 17 percent, according to Aon’s August 2009 Airline Insurance Market News. That said, Aon notes that the average is somewhat inflated by the renewal of a U.S. program that had a fatal loss earlier in the year. Without that, the average increase in lead hull and liability premium would only be 14 percent so far this year. Irrespective of the specifics, the current conditions are clearly a significant turnaround compared to 2006 and 2007, when prices in the airline insurance markets declined by more than 10 percent each year. Despite only one major loss since June, 2009 still looks set to be very expensive from a claims point of view, according to Aon. Overall losses (including minor losses) have cost aviation insurers $1.66 billion so far in 2009, compared to $798 million in 2008. Check out I.I.I. aviation facts and stats.

Aviation Market News

Total claims for aviation insurers are likely to be significantly higher than the average by year-end, even if there are no further major accidents, according to Aon’s July 2009 Airline Insurance Market News. With just over half of 2009 gone, claims including an estimate for minor losses are already around 11 percent higher than the average for a full year. Overall losses (including minor losses) have cost aviation insurers $1.59 billion so far in 2009, compared to $715 million in 2008. Aon projects that total claims for the year could exceed $2.2 billion, nearly 60 percent higher than the long term average of $1.4 billion. With the Air France and Yemeni losses, June looks set to be the most expensive month in the aviation insurance market since September 2001. “In an already hardening market, this means price rises are likely to be universal for the rest of 2009,† Aon notes. It also means that even with half the year still to go, 2009 is already the third most expensive year ever in terms of hull and liability claims (excluding 2001). “Any further major losses will simply make the position worse, and would potentially extend the expected hard market conditions well into 2010,† Aon adds. Check out I.I.I. aviation facts and stats.

Air France Crash: Aviation Market Impact

Sighting of debris in the Atlantic Ocean 400 miles off the coast of Brazil yesterday appeared to confirm the crash of the Airbus A330-200 operated by Air France with 228 passengers and crew on board. The plane was en route from Rio de Janeiro to Paris when it went missing in the early hours of June 1 while flying through thunderstorms and heavy turbulence. According to latest reports, automatic messages indicating an electrical fault were sent some four hours into the flight and Brazilian authorities also reported that messages indicated a loss of cabin pressure. As the investigation into the cause of crash gets underway, industry commentators say it is too soon to say how the  incident would impact the aviation insurance market. A June 1 Business Insurance article by Zack Phillips reports that the hull of the aircraft is insured for around $100 million. A May 2009 aviation market update from Aon noted that a few major losses can completely change the loss profile of a year. Aon said major losses have cost aviation insurers $597 million so far in 2009, compared to $351 million in the same period of 2008. It added that the value of losses so far this year continues to be very high in comparison with long term industry trends. A Guy Carpenter brief notes that this would be the first time an A330 has been lost during an operational flight. It would also be the worst loss of life involving an Air France plane. The last major incident for Air France was the July 2000 crash of a Concorde aircraft in which 109 people on board and at least four on the ground were killed. Check out I.I.I. facts on aviation.

Aviation Safety

As investigators begin the task of determining what caused the crash of a turboprop regional aircraft in a Buffalo, New York suburb late yesterday, it seems that weather conditions, rather than birds may have played a role. The plane, a Continental Connection flight operated by Colgan Air, was en route from Newark, New Jersey to Buffalo with 49 people on board when it crashed into a house in the Buffalo suburb of Clarence Center. According to latest reports, the total death toll from the crash is thought to be 50, including one person on the ground. The incident comes  just a  month after the emergency landing of a US Airways Airbus A-320 into New York City’s Hudson River in which 155 people escaped. Despite these two aviation accidents, it’s important to note the strong safety record of the U.S. commercial aviation industry. The number of commercial aviation accidents on scheduled flights with 10 or more seats, stood at less than one per 100,000 flight hours at year-end 2007, according to National Transportation Safety Board (NTSB) data. There were no fatalities on large scheduled commercial airlines in 2007, compared with 50 in 2006. Check out further I.I.I. facts on aviation.