Challenges exist for both clients and insurers, bound together as we are in a symbiotic relationship, weathering the storms of global issues in our industry and in the wider economy.

As the industry was just about to take off again and recover from the pains caused by the pandemic, such as staff shortages or supply chain bottlenecks, it encountered further turbulence. We are now facing high inflation, an energy crisis (especially in Europe), the impact of the Ukraine conflict and potentially the largest single loss ever to hit parts of the aviation insurance market.

At the same time, the climate crisis is acute as ever, driving the net zero transition in the aviation industry. In such an unstable global environment, there is no doubt that Aviation insurers are in the eye of a mighty storm.

Inflation is a key concern for both the Aviation industry and its insurers. For Aviation carriers, it’s essential to avoid systemic issues that can be caused by failing to keep up with trends in the wider economy, and remain conscious of their capitalisation position to be sure their reserves are sufficient to meet claims emerging while inflation is surging – indeed regulators are actively engaging with the insurance market to ensure that inflationary effects are being accounted for.

While supply chain and labour force issues are the obvious drivers, in Aviation rising hull values and the increased use of composite materials in aircraft manufacturing continue to increase the cost of such composite aircraft repair compared to alloy bodied aircraft. Even if overall inflation steadies in 2023, as the cost-of-living crisis reduces demand and production difficulties and supply chain constraints ease, the longer-term drivers of inflation within the Aviation industry will continue to put upwards pressure on costs.

In addition to this, insurers are wrestling with social inflation driven by claims trends such as increasing litigation, broader definitions of liability, claimant friendly legal decisions and larger compensation awards from juries (particularly in the US). While large loss experience to date remains below historical averages, the social inflation trend persists and will continue to burden defendants with no clear approach to remedy.

We are also seeing reinsurance costs continue to rise. In addition to Aviation-specific issues, inflationary trends, and the aftermath of Hurricane Ian have raised costs across the board.

Finally, we have the elephant in the room – the war in Ukraine, and the potential associated losses, which is hanging over parts of the market – at the very least we see costly litigation. However, despite the doom and gloom, I am looking for the positives. The Aviation insurance market has always responded to challenges and I believe it will do so again, even with some hefty bumps along the way.

Immediate market challenges aside, the power of digitalisation, new technologies and the growing relevance of sustainability, and the march towards net zero by 2050 presents both challenges but also real opportunities. Whether we are talking about sustainable aviation fuels or next generation aircraft, as insurers we have a crucial role in assisting our clients along the runway to the future – as a reliable partner in de-risking their businesses as new challenges arise.

Talking of clients, I have found they are invariably at least two steps ahead in this regard. The fantastic innovations and outstanding awareness around this subject that we are seeing are testament to that.

I believe we are lucky in our market to have such well-informed and smartly run clients, who understand the game. We must match their technical excellence and responsiveness.