Convex has committed long-term to aviation. What is your vision for the future?

Convex’s aviation vision has always been aligned with the Convex Group’s 3 key pillars – to be our clients and brokers preferred insurer, use data and technology to make better informed decisions and to deliver a top quartile performance by utilising automation to improve the process efficiency of our business. There is no doubt that the specialty market as a whole and aerospace insurance within that have not kept pace with the rest of the financial services industry in adopting technology or innovating our product and therefore haven’t always delivered an improved outcome for clients, brokers and insurers alike.

We actually think we’ve made a lot of progress in that area, in that we now ingest circa 90% of our Airline data into our analytic tools via a Bot which entails minimum human interaction. We have also embraced the use of APIs and automation within our internal systems to further reduce the manual data entry.

There are obvious benefits to this from a cost, efficiency and accuracy perspective but it also allows us the time to utilise our Underwriter’s intellectual capital on the actual analysis of the risk and the development of new products. This is a key strategy for the group and I’m very pleased that Aerospace have been at the vanguard of these efforts. I would thank the brokers who have worked with us to achieve this as clearly we couldn’t have done this independently.

On a more high-level perspective, we have continued to grow our business year on year and have been able to achieve many of our goals during some favourable underwriting conditions - notwithstanding the uncertainty surrounding the events in Ukraine in Feb 2022 - so we can already see tangible benefits in our approach. In particular, I’d highlight our leadership position on multiple lessor accounts (Hull and Liability and War) as a result of the product restructuring we offered. We were also recently appointed as leader of a major flag carrying airline to add to our current suite of lead accounts.

Insurers regularly speak about wanting to innovate the aviation industry. What, if anything, would you most like to change?

I think the product needs to become much more bespoke. We don’t see the logic of providing the same product to an insured regardless of their history, experience in the business, quality of operations, infrastructure environment etc. That is to say, why are we offering the same product to a long-established first world carrier operating within a strong regulatory environment as well as to a start-up in a more developing and challenging territory?

The inevitable outcome of this approach is that we only differentiate on price and that differentiation is never really sufficient. This becomes particularly acute in a soft market when the gap between the top and bottom quartile airlines becomes squeezed to a very narrow margin. That is not fair on the best operators and is unlikely to result in the best outcomes for insurers. We also become hostages to the market cycle which may not always reflect the environment the insured is operating in. Aircraft are highly sophisticated machines and we should be able to harness that technology to more closely align the product to an insured’s activity – for instance it could be linked to their actual operational cycle. More excitingly, perhaps in the future, this could consider the safety data an aircraft produces, and the key operation challenges which can produce unfavourable outcomes for insurers e.g. unstable approaches.

There have been some product enhancements already, but this approach could also allow more widespread adoption of non-annual policies for example as well as a potential shopping list of enhancements/restrictions that can be charged/discounted for. In this environment, we are genuinely recognising an individual airlines characteristics. For the most part, other than a few rare examples, Airline Hull deductibles haven’t changed since 1984 - I’m showing my age, but I’ve still got a yellowing copy of the memo somewhere.

There is no reason this approach could not also be adopted for the more sophisticated General Aviation operations i.e. offshore rotor-wing/large corporate aircraft management companies.

There is also a strong feeling in the market that the Hull War product should be updated - and not just because of the situation in Russia. We support this view and again this is something that is more viable due to the quality & granularity of the data we collect and the advances in security software available to insurers.

The aviation market has managed a ‘vertical’ pricing approach for at least 40 years, but price alone is a blunt tool and only one way of differentiating an airline’s product and we haven’t embraced the opportunity effectively enough to create a more sophisticated approach.

One other area that we’ve explored over the last couple of years is developing non-traditional products for the aviation industry. We have recently launched a new product that is aimed at the airport sector and the companies that own or finance them. We are in the process of conducting a series of meetings with the broking community to explain this product and we hope we will generate meaningful interest in the coming years. We are always interested in hearing from clients on topics of concern for them that sit outside the current risk transfer framework and welcome further engagement in this regard.

Day-to-day aviation loss levels still appear down on ‘normal’ years, but many airlines/aviation operations are now back operating at or above pre-pandemic levels.

Do you see this as a fundamental shift in safety or is it still just a short-term anomaly?

I think we are genuinely in an extended era of lower frequency but higher severity, even for attritional losses. We can only applaud the enormous investment the industry as a whole has made in safety and technology and for over 20 years (barring the odd blip) we have seen this trend emerge and be maintained. Inflation will continue to have an impact on this in future years, whether it’s labour costs, supply chain issues, social inflation impacts on liability settlements or the cost of repairing newer generation aircraft. We have also seen a meaningful increase in weather-related losses in the last few years which is a trend that is likely to continue.

There is no doubt we are not fully reflecting that in the pricing, regardless of the pricing corrections that took place between 2018 and 2022. However, this only supports the argument that greater differentiation needs to be applied to the product we offer and for us to move away from a purely price-focused approach.

In 2023 we saw insurers impose numerous restrictions and limitations on aviation policies.

Why do you think this happened and do you anticipate any further significant changes in the near term?

Apart from the complexities and systemic potential of the Russia situation, we need to recognise that in order to provide the level and scale of coverage that our clients demand and require - and this applies equally to airlines, lessors, manufacturers etc. - we all do rely to a greater or lesser extent on reinsurance (RI) capacity. The Aviation market provides some of the broadest coverage (including unlimited ‘sideways’ coverage in many cases) and the highest limits of any Specialty market. This needs to be considered in the context of the total available premium pot which is tiny in comparison to both the limits we provide and the wider P&C market. Therefore, it isn’t sustainable for the Direct or RI market to continue to provide this without some thought around mitigating factors such as sub-limits for certain coverages and territories. It also needs to be recognised that the greater the severity of an individual loss, the more disproportionately this falls on the RI market. Without their continued support, the direct market would not be able to offer anywhere near the same level of coverage.

We also need to recognise that reinsurance costs to direct insurers (and the level at which cover attaches) have both increased for two successive years and that will have a direct impact on margins unless we can manage exposures and retain a sustainable premium level across all lines of Aviation business.

We believe there is a balance to be struck in this regard, but it can’t be ignored that there has been a loss that is the largest since 9/11 and we still have material uncertainty around the outcome of the Russia/lessor situation.

The key here is that we need to provide the most detailed and comprehensive view of our exposures to their reinsurers to secure the best outcome in terms of coverage and price. That has and will continue to require a much greater level of granularity of data from clients and brokers, especially around facilities such as line-slips. Referring to my original comments above, the key for insurers then is how we absorb that data efficiently and make it available usefully to our underwriters. I strongly believe that data in itself is not a competitive advantage but the ability to ingest/cleanse and produce meaningful insights from it is the key.

Lastly, aviation insurance pricing has been softening in 2023 across many lines of coverage with the exception of War/AVN52.

How do you see the market tending in 2024?

Finally, predicting what will happen in the aviation market over the next 12 months is an incredibly challenging task. In the absence of a significant deterioration in loss experience or withdrawal of capacity (direct or reinsurance) there are not really the ingredients for a meaningful change in the current climate. As stated before, a sustainable market is beneficial for all parties and that requires an appropriate level of premium and coverage which considers some of the challenges the direct market has and will continue to face in 2024 – be that inflation, reinsurance cost and availability or uncertainty around the outcome of major claims.

Every insurer (and reinsurer) has their own agenda, challenges and strategies but what I would say is that both the aviation industry and the insurance market have proven incredibly resilient to these challenges over many years, some of which appeared almost terminal at the time, and it has consistently found answers to deal with them. The broking community is extremely adept in their role in this, and we look forward to working closely with them and their clients to continually improve and evolve our product as we enter this next exciting phase.