The airline insurance market could be described as benign but watchful as the final quarter of 2026 comes into view. Taking the three main parts of the airline insurance market in turn, the war market continues to soften as a result of healthy capacity, while both hull and liability markets are generally looking to apply increases. There are regional nuances though, as we discussed in the Q1 edition.
On the positive side, there is plenty of capacity available, which is maintaining the competitive pressure that the aviation industry has enjoyed over the last couple of years. Equally, while there have been some major hull claims, liability claims have been limited in 2026 so far, and while the geopolitical tensions are a concern, the aviation industry and the insurance sector have taken the complications in their stride, in the main.
On the less positive side though, there is the potential that conditions could deteriorate quickly. While aviation is one of the safest forms of transport, aircraft operate in a punishing environment where issues can quickly become problems. The aviation industry is also often at the center of any political uncertainty, with airports and associated infrastructure representing attractive targets when the situation in a country or region becomes complicated .
In short, market conditions have remained unaffected up to this point in the year for airlines with a good loss record, a strategic approach to risk management, and operations in regions where insurers do not have significant concerns about pricing adequacy.
Unless there are a number of major incidents as 2026 draws to a close, conditions could continue in the same way as we approach the final quarter renewal season, when an estimated 65% of annual airline lead hull and liability premium is placed.
The Miami runway incident at the start of September offers a warning about how quickly the situation can change however. The causes of the incident have yet to be ascertained, but there will be both hull and liability claims and it may be a factor in discussions during the renewal season. Conditions remain benign, but each loss adds to the potential to for change.
Accumulation exposure
Every major incident influences the way that both the airline industry and the insurance sector work. The Russian government’s 2022 decision to make it illegal for aviation equipment to leave the country stranded more than 400 leased aircraft and items of aviation equipment. This led to a three-year legal case, aspects of which are still ongoing.
One of the ways that this changed the operation of the airline insurance market is that underwriters have become more sensitive to accumulation risk, where a single event triggers losses across multiple policies and causes large aggregate losses for an insurer or reinsurer.
While we commented in the last edition of this update that the ruling in the courts of England and Wales improved global clarity around the “grip of the peril” doctrine applicable to confiscation risk, it also led insurers to discuss fleet position in regions where there was a heightened geopolitical risk, whether that presents as risk of seizure or assets being damaged as a result of conflict. There is a need to ensure that risk models can respond to the implications of an airline having a proportion of its fleet at a single airport if that airport finds itself under threat.
The changing nature of warfare and the increasing use of drones is also changing risk profiles. There is a concern that a massed drone attack on an airport with aircraft on the ground represents a new form of accumulated risk, one that the insurance sector needs to ensure that it understands and quantifies as it strives to support the activity of the aviation industry.
Geopolitics bites
The ramifications of the geopolitical tension are apparent in the July 2026 passenger demand figures published by the International Air Transport Association (IATA), which rose by a mere 0.2% compared to July 2025.[1] Removing the Middle East from the global figures, passenger numbers actually grew by 1.2% year-on-year. The figures are an improvement on June, when total passenger demand fell 0.6% year on year excluding the Middle East (-1.7% if the Middel East is included).
Volatility in aviation passenger numbers is to be expected given the challenging conditions in what has become one of the aviation industry’s major hubs and the impact that it is having had on the price of jet fuel. It creates an additional, tangible issue for the insurance market given that prices at renewal are based on forecasts for average fleet values and passenger activity for the year. When expectations are not achieved, it can lead the leadership teams at insurance companies to examine their commitment to the aviation sector, which removes capacity from the market and makes it more challenging for brokers to negotiate insurance policies.
This process takes time, and given the healthy level of capacity currently available in the airline insurance markets, it could be that the clamor to meet targets could create additional downward pressure on renewal prices for operations with positive loss records and a clear strategy for risk management, at least initially. In the medium to longer term though, capacity could evaporate and harder market conditions would be the likely outcome.
Neither the aviation industry nor the airline insurance market control geopolitics or fuel prices, but nonetheless they find themselves at their mercy.
The insurance market accepted the increased tension and outbreak of hostilities in the Middle East in a relatively measured fashion. This suggests that despite the geopolitical volatility, communications between the three sides of the insurance and risk management relationship have been enhanced over the last few years to the point that insurers understood the risk, trusted the information that they were being provided and avoided issuing notices of cancelation.
In summary, while conditions are generally favorable, the market does appear to be on edge, and if there is a loss or string of losses as a result of an accident or a geopolitical event, the consequences could be considerable and far-reaching. The extra leeway that the sector has developed could be withdrawn quickly. The main point is that the aviation industry and the insurance sector understand their potentially evolving exposures and can work together to adapt to any changes that may take place.
Footnote
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Aviation & Space contact
The changing nature of warfare and the increasing use of drones is also changing risk profiles.
