Insurance, safety and data in the aviation sector

In recent years, there has been a lot of focus on the power of data and how it could potentially define the scope of risk, enhance decision making, refine the price of insurance and improve safety across the aviation industry. Aviation is a data-rich environment and if the insurance market could access that data, new exposures could be identified and steps taken to manage risks before they are converted into claims.

While there may be some truth in the assumption that data can improve the way that risk is managed and insurance is priced, the reality is that the improvement will not be instant, and the process of sharing, cleaning and comparing the data between the aviation industry and the insurance sector will be complicated. There are several factors that need to be taken into account before data can truly become transformational.

The short-term reality

Before going into the long-term structural points, it is worth describing three practical reasons why data is unlikely to have a significant influence on insurance pricing in the short term.

Firstly, there is the steady rise in the price of aviation claims. Global air travel has grown significantly over the last few years, recovering quickly from its pandemic pause, and more activity increases the likelihood of an incident.

Secondly, while the amount of air travel has increased, liability payments of more than US$10 million are also becoming more common. Where so-called nuclear legal verdicts of this size used to be confined to the US, the rise of middle classes in countries such as China and India has broadened the geographic spread.

Thirdly, aircraft hulls have also increased in value. The way that the current generation of aircraft is manufactured means that seemingly minor incidents can lead to constructive total losses.

In short, the price of aviation insurance needs to be able to keep pace with the cost of covering a claim because there is more air travel, higher liability payments and increased hull values globally. As a result, the benefits of minor enhancements in data quality and availability are potentially being swallowed by the changing risk profile of the aviation industry.

Data is still based on past performance

Approaching the data discussion from a longer-term, strategic perspective, there is a suggestion that some risk models are somewhat behind the curve and do not necessarily reflect the potential range of risk outcomes. In an industry as dynamic as aviation, past experience may offer a less realistic framework to judge what could happen in the future.

While enhanced data could offer a more scientific approach, improve risk models and potentially highlight issues before they become claims, in reality it is only part of the safety picture. Aviation organisations generate vast swathes of data around every aspect of their activities, but converting it into meaningful insight that can aid risk assessment and improve safety has so far proved to be a significant hurdle.

It is also important to recognize that data is generated by past performance. While decisions based on data could be seen as potentially offering a more scientific approach to risk, it still needs to move from data to insight if it is going to add value to the risk management process.

It’s only as good as what you put in

Data quality and comparability present another challenge. Aviation organisations collect data for different reasons, in different ways, while operating in different regulatory regimes in support of different business models. To make a difference in the way that insurance is priced across the industry, the insurance sector needs data that is consistent both in terms of what it is and how it is collected. In addition, much of the data that the aviation industry currently collects is different from the information that the insurance sector needs to analyse.

If the sector can’t be certain that two data sets are directly comparable, any pricing decisions or safety recommendations based on those conclusions have the potential to be flawed. It might look good and sound sensible in the short term, but sooner or later it could create a challenge of the kind that both the aviation industry and the insurance sector would rather avoid. Essentially, any data needs to be relevant, fair and credible if it is going to be trusted for safety purposes.

There is also the question of benefit. Even if there was a simple and comprehensive way of taking the data that an aviation organisation holds and transforming it into information that the insurance sector could use and compare across similar but not identical risk profiles, who benefits?

Airlines benefit from being able to analyse their own data from a safety perspective, but they understand the nuance of their specific operations. Simply handing data to insurers in the hope that they can glean something from it is unlikely to lead to a meaningful improvement in the pricing of insurance because it doesn’t take into account the view of, for example, the airside team. The debate needs to move beyond access to data and examine how data can be transformed into safety intelligence.

In some ways there is a paradox at the heart of the current discussion around data: the insurance sector needs credible data to base decisions on, but it also needs to ensure that it has the expertise in place to interpret the data and convert it into safety intelligence. The insurance sector needs to ensure that it nurtures talent that can understand the ramifications of safety data and information from a wider aviation perspective.

Creating access for cyber threats

There is also the fact that aviation organisations represent mouth-watering IT targets for bad-faith actors with financial or political motivations because of the number and value of the financial transactions being made, as well as the value of the customer information they hold.

Both aviation and insurance companies have a responsibility to clients, partners and shareholders, as well as to the societies in which they operate, particularly given aviation’s role as critical national infrastructure, to ensure that their IT estates are secure. Moving data between IT estates carries with it considerable risk, in terms of the potential financial losses, the opportunity to access sensitive information and the chance to get into an estate and wreak havoc.

While the aviation industry and insurance sector are closely aligned, the reticence around data-sharing is understandable. All sides should proceed with caution.

Carefully considered, incremental steps

In short, while there is a recognition that the insurance sector could expand at this point, the challenges of accessing that data, making it genuinely comparable and addressing the associated security issues are curbing ambitions.

The opportunity to use data to enhance the way that aviation insurance functions is enticing, but human factors and safety culture remain at the heart of any safety management system. The combination of frontline personnel and leadership commitment is what creates a genuine safety culture. The insurance sector can bring perspective and support, but organisations need to lead culturally to embed safety cultures.

Ultimately, enhancing safety is a long-term endeavour that requires a shared roadmap, aligned goals, and equitable benefit for all parties.

The aviation industry has a long history of sharing data where appropriate and it seems likely that resources will continue to be pooled. Cooperation, transparency, and strong relationships are the foundations for progress.