03 January 2024
General Aviation Insurance
Market Update Q4 2023
The renewal activity in Q4 often provides insight as to what we might expect to see in the first half of the coming year. In this article, we will explore some of the factors currently affecting the rating trends across the General Aviation sector and look to what this could mean for buyers and the market, globally as we enter 2024.
General Aviation makes up a vast swathe of the aviation insurance industry and insurance market and whilst it is somewhat difficult to generalise trends across all different sub-sectors of General Aviation, we are certainly seeing a similar picture, in many areas of the business.
Hull & Liability rates coming under pressure
As 2023 concludes, all indicators point to the fact that the resolve of General Aviation underwriters to maintain current rating levels is wavering. The availability and access to, high-quality security, provides buyers with the opportunity to stress-test pricing and explore available coverage in the market.
Due to recent ‘Black Swan’ events in other areas of the aviation sector, General Aviation is perceived to be a much more benign space, in to which insurers might deploy their capacity. Lower hull values and required liability limits, enable insurers to deploy significant shares on any given placement.
As a result, we have seen a significant influx of capacity, with existing insurers prepared to deploy larger participations, in order to maintain their position on renewals.
In addition to the pressure on headline rating, we are increasingly seeing negative verticalisation being reintroduced, providing further savings for buyers, making it hard to accurately gauge rating movement over the Q4 period.
The sudden and unexpected withdrawal of Chaucer Syndicate 1084, from the Aviation and Aerospace sector at 1/10, seems not to have had any meaningful impact on the General Aviation market landscape, despite their history and presence in the class.
Managing General Agencies (MGAs) have added significant additional capacity and expertise, to the General Aviation (re)insurance market over the past few years. As insurance companies look at cost-effective, alternative distribution channels, MGAs have provided specialised underwriting expertise, giving insurance companies access to portfolios of General Aviation business, which would not otherwise be accessible, without significant capital investment and regional representation.
As a result of increased global economic development, air travel is becoming more accessible, affordable and in demand. In addition to softening in the more traditional and developed markets, broker competition and new capacity, is creating significant competition in all areas and this trend, no doubt, will continue in to 2024.Rates began to stabilize last year as they reached a sustainable/profitable level for insurers. As we move into Q3 2023, rates are starting to flatten. Loss free accounts are typically seeing modest increases with rotor-wing accounts still bearing the brunt of the increases due to poor historical performance. Market consolidation in the Part 135 sector has caused the rates to come down as overall fleet values increased, but inflationary pressures, cost of new composite materials, and supply chain challenges leading to longer down times have kept rates stable as opposed to swinging to softer conditions.
General Aviation claims and aviation safety
Unlike the Airline Insurance market, it is rare for a single, or even a spate of incidents, to be the main driver of market rating across the board. We are still seeing a number of losses in the class, consistent with the post-pandemic recovery of the aircraft industry and the increased appetite of the general public to fly. However, some of the most significant losses experienced in the GA market in recent years have been ‘non-operational’ losses, as a result of extreme weather, such as, earthquake, hail and extreme snowfall.
Due to ongoing supply-chain issues and back orders of new aircraft, values of older aircraft remain relatively high and the cost of repair continues to increase, leading to significant claims inflation, in the event of an incident.
Operators are increasingly being forced, by their customers, to invest in new, more efficient and ultimately, safer aircraft. End-users, particularly in the oil & gas and mining industries are also pushing for standardised safety standards to be implemented across the global aviation community. The reduction in the frequency and severity of incidents over recent years, would suggest that the culture of safety is trending in the right direction.
The impact of increased Hull War pricing on the General Aviation market
Well-publicised recent events and the increased uncertainty of the geopolitical landscape has had a significant impact, on buyers of General Aviation Hull War coverage. The Russian invasion of Ukraine, civil unrest in a number of African countries and the current events in the Middle-East, have significantly impacted the underwriting results and focussed the minds, of those who participate in the class.
Rates have increased significantly across the board, but those operating in perceived high-risk regions, have experienced a far greater increase in their insurance spend, than they could have ever predicted two years ago.
The reduction in market capacity and general lack of appetite for certain risks has exacerbated the issue and buyers continue to look for cost-effective solutions.
This situation has had a direct knock-on effect to the traditional Hull & Liability markets, who have been unable to provide solutions to their clients, who require Hull War coverage. This situation has forced brokers to focus on the wider picture, when selecting Hull & Liability capacity.
We have already seen and will certainly continue to see in 2024, traditional markets providing Hull War coverage, to complement their Hull & Liability offering, to ensure that they maintain their positions on significant business and portfolios.
The impact of climate change on General Aviation
Whilst the subject of climate change and de-carbonisation is debated at COP28, the General Aviation industry continues to be relevant and prominent.
As was featured in the Q3 edition of Plane Talking, Alistair Blundy of Skyrisks provided a vision, of a more sustainable future for the aviation industry, discussing the investment in and development of eVTOL and eSTOL type aircraft and their inevitable introduction to the commercial passenger market.
Traditional operators of aircraft are also providing essential services in response to natural disasters, such as wildfires and catastrophic flooding, which are becoming more frequent and severe and are now affecting regions not historically subject to these phenomena. The General Aviation industry is often the first line of defence for fire-suppression, evacuation and aid provision, during and in the aftermath of these catastrophic events. This sector continues to grow and develop in to a highly-professional and sophisticated market, pioneering new techniques to meet the challenges posed by our warming environment.
Notwithstanding the progress made in safety, the increased risk profile of fire-suppression and MedEvac flights have resulted in some significant and high-profile claims to the market in recent years and as Next Generation aircraft replace older technology, the potential severity of losses will increase significantly.
As previously mentioned, non-operational losses, arising out of extreme weather events are becoming more commonplace and the issue of ground accumulations at busy GA hubs is an issue for aircraft owners/operators. Extreme weather events can often prohibit the movement of valuable assets at short notice, leaving multiple assets exposed to potential and unavoidable losses.
The toolkit for the General Aviation industry continues to expand at pace and although there will always be a need for piloted aircraft, many operators are identifying, testing and now actively utilising UAVs in applications to mitigate human risk factors and drive cost efficiencies.
General Aviation outlook
Due to the diverse nature of General Aviation, it is always difficult to predict specific outcomes for individual buyers. These outcomes can be driven by a number of factors, including individual loss experience, aircraft utilisation and mission profile and certain other geopolitical issues, some of which I have touched upon, in this article. However, it is apparent that there is growing appetite for insurers to participate in this developing sector of aviation and that can only be good news for buyers as we enter 2024.
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