| Trend | Range | |
|---|---|---|
| Airlines: |  |
+25% to +40% |
| Aircraft lessors/banks: | |
+5% to +15% |
| Product manufacturers and service providers: | |
+15% to +30% |
| Airports: | |
+15% to +25% |
| General aviation: | |
+20% to +40% |
| Space: | Increases to be expected, percentage range not applicable | |
Key takeaway
The air travel industry hopes for a revival as the pandemic wanes, but insurance buyers may continue to face a hard market.
While some feel confident that summer 2021 will bring about significant growth in air travel, at least domestically, demand is 65.9% down in comparison to 2019, according to the recent IATA statistics.
- Regardless of what 2021 brings, the most dismal days of 2020 are behind us, and the ongoing progress of COVID-19 vaccine distribution suggests reason to be hopeful.
- Having said that, we anticipate the repercussions of market unprofitability will persist. Underwriters continue to push for rate increases, regardless of loss history, and strive for limit reductions on certain risks.
Airlines
Prior to the implementation of global travel restrictions, 2020 was expected to be a year of premium recovery for the airline insurers. However, significant credits were issued on adjustable policies, and 2020 proved to be another loss-making year.
- Global airline premiums are still insufficient, with 2020 now expected to total $1.5 billion compared to the $2 billion that was originally predicted; the steep drop mostly a result of the large, grounded fleet credits that were applied. Insurers applied minimum premiums of between 85% and 90% on their year-end 2020 renewals to protect their go-forward premium base.
- Despite ongoing efforts to achieve better rate adequacy, we expect more market consolidation.
- New capacity in 2020 helped deter massive rate increases at year-end renewals, while estimated losses were lower than expected.
Aircraft lessors/banks
Hard market conditions continue, but insurer appetite remains strong in this segment.
- Anticipate current market conditions and steady rate increases to continue through 2021. One exception may be hull war rate increases, which we think will likely taper off from those seen throughout 2020.
- 2020 saw a significant increase in claim activity, namely repossession expenses, which were offset to a great degree by the increasing premium base.
- Overall market capacity remains adequate, especially for those profitable insureds with a growing fleet.
- Oversight on underwriting from insurer senior management continues, with a focus on technical records, repossession expenses and ground accumulation exposures.
Aircraft product manufacturers and service providers
Rate increases are still expected on renewal business with heightened selectivity when it comes to new business, especially on loss-active accounts.
- Large loss reserves continue to impact this sector’s overall underwriting profitability.
- Insurers remain concerned about higher-limit exposures and premium inadequacy, as grounding limits remain under scrutiny.
- While insurers preserve a case-by-case underwriting mantra, most buyers can anticipate rate increases regardless of loss history.
- Maintenance, repair and overhaul service providers (MROs) and ground handlers can anticipate a decrease in viable capacity due to loss activity.
Airports and municipalities
Rate corrections are to be anticipated as hard market conditions continue.
- Most previously horizontal programs are being placed vertically due to reductions in capacity and/or appetite, especially if limits exceed $250 million.
- Creative structuring is more prevalent, with excess layers becoming increasingly more attractive to insurers.
- Marketing remains necessary if municipal boards want competitive options — assuming any can be found.
- Insureds can expect non-aviation excess limit reductions, such as excess employer’s liability and excess auto, as well as more clarified exclusions, like cyber.
- COVID-19 exclusions are also being added to excess employer’s liability, when applicable.
General aviation
This sector continues to experience significant rate increases, especially within the rotor-wing segment, where U.S. exposures are being evaluated more closely.
- Insurers are taking a two-pronged approach to underwriting. First, applying rate increases and second, imposing coverage reductions and/or restrictions, especially pertaining to non-aviation coverages and extra expenses.
- Insurer upper management continues to enforce strict underwriting guidelines, enforcing minimum premium parameters and requiring detailed underwriting information, specifically regarding pilot experience and simulator-based training.
- Rotor-wing operators can anticipate domestic markets reducing their line shares, whereas overseas appetite has grown slightly since 2020 — although limit reductions can be anticipated across the board.
- Buyers are contemplating limit layering and non-conventional structures as insurer appetites continue to vary.
- Broad policy provisions remain a thing of the soft-market past, with excess non-aviation coverages being reduced or eliminated, hull deductibles being reintroduced, or increased, and credit opportunities — such as lay-up returns, profit commissions and good experience returns — being removed altogether.
Space
Since the rate corrections applied in 2019 and 2020, this sector has settled into a more profitable underwriting and pricing approach.
- Greater risk differentiation is based on limit requirements and technology-based risk variations.
- The market’s annual premium income-target is $750 million, up from an average of $500 million from 2013 to 2020. Had insurers met that target in 2020, they would have enjoyed a profitable year.
- 2020 market income was hampered by pandemic-related project delays, in addition to several large market-wide claims.
- One insurer recently exited the market, while two others have decreased their capacity.
- New insurers/capacity have come into the market to replace some exited/decreased capacity.
Disclaimer
Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed subsidiaries of Willis North America Inc., including Willis Towers Watson Northeast Inc. (in the United States) and Willis Canada, Inc.
Each applicable policy of insurance must be reviewed to determine the extent, if any, of coverage for COVID-19. Coverage may vary depending on the jurisdiction and circumstances. For global client programs it is critical to consider all local operations and how policies may or may not include COVID-19 coverage. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal and/or other professional advisors. Some of the information in this publication may be compiled by third party sources we consider to be reliable, however we do not guarantee and are not responsible for the accuracy of such information. We assume no duty in contract, tort, or otherwise in connection with this publication and expressly disclaim, to the fullest extent permitted by law, any liability in connection with this publication. Willis Towers Watson offers insurance-related services through its appropriately licensed entities in each jurisdiction in which it operates. COVID-19 is a rapidly evolving situation and changes are occurring frequently. Willis Towers Watson does not undertake to update the information included herein after the date of publication. Accordingly, readers should be aware that certain content may have changed since the date of this publication. Please reach out to the author or your Willis Towers Watson contact for more information.
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