09 January 2025
Next Generation Transport
As businesses in the Advanced Air Mobility sector take flight, a widening range of risks can hinder their safe passage. We’re here to help.
Flight has always fascinated me, but early innovators encountered pronounced risks, some of which persist to this day. During the millennia between the fable of Icarus and the advent of Advanced Air Mobility (AAM), risk management has been considered paramount in aviation. The sector has, for the most part, brought the risk of flight very much under control, but the rapid advance of innovative, evolving AAM businesses has redrawn the picture and altered the risk profile of commercial flight.
The scope of AAM Risks
AAM companies - from eVTOL (electric vertical take-off and landing) manufacturers and other remotely piloted vehicles to space tourism dreamers and vertiport operators - face a wide range of technological and business risks that must be identified, understood, and managed.
As the technology develops and operations and flight testing gather pace, so does the understanding and data become available to better manage the exposures.
“Everyone talks about AAM in terms of it being pilotless passenger drones. But as we've realised, AAM encompasses all classes from electronic aircraft to space tourism to supersonic flight, and the technology just keeps evolving.”
Paul Curtis, Partner, Gallagher Aerospace
Battery Fire
Battery fire risk is perhaps AAM's most significant single risk factor. Battery fires are difficult to extinguish, and some of the materials used in AAM construction are flammable.
Even when all precautions have been taken to minimise fire risk on board, a flight may be thrown into danger by a fire elsewhere, on the ground. If another operator’s battery fire shuts down your destination vertiport while you’re mid-air, there needs to be sufficient reserve power to reach an alternative landing site. Contingency plans are essential.
Cyber
Cyber risk is another threat at the forefront of operators’ minds. Unmanned, autonomous cargo vehicles could be at risk. Similarly, hackers could disrupt vertiport infrastructure or air traffic control, creating serious safety problems.
Public perception on this front is another risk. Operators need to work hard to make the public feel safe and therefore increase acceptance of these new forms of travel. One source of comfort is that operators are putting in place multiple redundancies with some planning to keep a human ‘in the loop’ for the foreseeable future.
Product Liability
Product liability risk may be considerable. Many past projects have been grounded forever because of a lawsuit. The risk can be even greater for AAM manufacturers with only a few outsourcing partners since they may face the risk alone. Elsewhere in the aviation sector, product risk is much more widely shared.
Product liability insurance is available but costly. Insurers require detailed design and manufacture specifications, and coverage may still be unaffordable, especially in the US, where litigation rates and award outcomes are high.
Supply Chain
Supply chain risk is tangible even for vertically integrated AAM companies. Heavy reliance on third-party supply chains presents a risk because unforeseen circumstances and geopolitical actions frequently disrupt supply chains.
For example, production may require exotic materials sourced around the globe. Early-stage, resource-constrained AAM companies might not be able to stockpile these materials. Instead, they should flag this potential risk for mitigation by identifying alternative supplies.
Regulatory
Regulatory risk will multiply with the many new AAM rulesets now being outlined, adopted, and implemented by jurisdictions around the world. A standard has been set by the brand-new Federal Aviation Administration (FAA) rules for a powered lift category of aircraft (the first new type in 80 years), but ultimately, each ruleset is likely to be different in substantive ways. Because operators must transfer products between jurisdictions, a local issue could quickly spiral into an all-assets concern.
Regulators are understandably concerned about the safety of any innovative new product or service. They are looking for evidence that the AAM sector is robust and, in the event of an incident, can work in parallel with rule-makers and investigators to make improvements and adjustments.
Business Interruption
Business interruption risk is minimal for early-stage companies that lack significant revenue during the R&D phases since it is designed to protect the top line. However, it may remain uneconomic early in the operational phases of AAM company development, too.
However, continuity planning and disaster recovery processes should be adopted and implemented. Even if things keep running smoothly, such exercises can help AAM companies understand the impact of business interruption on the organisation, which informs decisions and budgets.
Operational
Operational risk is a broad category that captures many potential pitfalls that can be overcome through ‘operational resilience’. Some operational risks fall obviously into other named categories (like supply-chain disruption does into business interruption), but others don’t.
You may successfully sell 100 units, but you will be disappointed when your clients cannot find pilots. Formulating appropriate training that is appropriate to the uniqueness of AAM vehicles and flight characteristics is an example of operational resilience-building.
Market
Market risk is another real challenge for emerging AAM companies. For example, many may be uncertain about market acceptance, funding and competitive pressures. The ability to find customers, raise funds or beat the competition will divide the winners and losers.
Coping with risk
As they design the dreams of our future, AAM innovators typically wouldn’t have deductible levels and liability limits at the forefront of their minds. For resource-constrained companies focused on product development, nurturing markets and fundraising, risk management can seem like an unwelcome chore despite its enormous importance. However, without it, a risk that becomes a loss can break a promising company.
Insurance negotiations are complex and having the right broking expertise in place is critical. Every client is different therefore the team you work with needs to understand the challenges and requirements that are unique to your business. Your chosen broking partner should also act as your outsourced risk-management team, they should have demonstrated credentials in the aerospace sector and global specialty insurance markets and be at the forefront of delivering innovative client solutions. Such a partner is a specialist in grappling with unforeseen and emerging risks.
At Gallagher, we deploy a strategic risk management approach to identify and map the specific risk profile of each client organisation. We work to develop a detailed knowledge of their technology (e.g. such as whether they focus on all-electric or hybrid-electric power systems), and operations to understand their unique challenges, considering where they are today and where they want to be in the future. Such understanding, allows Gallagher’s specialist risk and insurance engineers to build out a risk management framework that draws on Gallagher’s extensive tools and experience in implementing aviation-sector best practices for risk, ensuring a tailored solution, shaped for their business.
The Gallagher Specialty Aerospace team are no stranger to working with new and emerging risks and has a demonstrated track record of pioneering creative ‘industry-first’ coverage enhancements and wordings and exciting new products and solutions for our clients. For example, the Gallagher team has been at the forefront of the space tourism market, and we are uniquely placed to draw on our experience of the challenges faced in this new industry sector. The AAM sector is in a similar position to where the space tourism market was a decade or more ago, and our wealth of experience allows us to help AAM clients mitigate, manage and transfer away the risks that threaten their success.
The advent of AAM has radically altered the risk landscape for the aviation sector. Flight has always been risky, and its dangers will never completely recede. However, with the right risk partner in the risk copilot’s seat, AAM companies can securely transform the dreams of the future into today’s mainstream success.
If you would like to find out more about our capabilities in this area and discuss your risk and insurance needs, please do get in touch.
Let's talk
Cybersecurity in Aviation
From cloud migration risks to the reliance on third-party systems like SABRE, airlines face mounting complexities in securing their operations.
The Challenges of Escalating Claims Costs
Explore highlights from the 'Let's Fly' conferences, covering rising Hull and Liability claims, supply chain issues, and advancing aviation technology.
Airline Insurance Q&A
In this feature Q&A, Nigel Weyman, looks back on 2024 and discusses the latest trends, challenges and market conditions in the airline insurance market.
Aviation Reinsurance Market Update Q4 2024
Gallagher Re highlights a mixed outlook for the reinsurance market ahead of the renewal period, with surplus capacity creating opportunities for buyers but recent aviation losses maintaining caution.
Space Insurance Market Update Q4 2024
The space insurance market has been through a turbulent period, but the future looks brighter as we head into 2025.
Manufacturers and Infrastructure Market Update Q4 2024
2024 proved to be a dynamic year, with renewal activity peaking in Q4. Insurers competed for desirable risks, which helped keep premiums stable.
General Aviation Market Update Q4 2024
2024 proved to be a dynamic year, with renewal activity peaking in Q4. Insurers competed for desirable risks, which helped keep premiums stable.
Arthur J. Gallagher (UK) Limited is authorised and regulated by the Financial Conduct Authority. Registered Office: The Walbrook Building, 25 Walbrook, London EC4N 8AW. Registered in England and Wales. Company Number: 119013.