Is aviation insurance entering a new era of risk?

The podcast brings together Trehane Oliver, managing director at McLarens Aviation; David Langran, class underwriter at Hive Underwriters; Ed Louth, head of aviation at Liberty Specialty Markets; and Tom Hughes, director of underwriting at the International Underwriting Association, to examine whether aviation insurance is entering a new era of risk.

Oliver explained how the nature and cost of aviation losses had changed as aircraft technology has evolved.

“There is increased complexity in the losses,” he said. “There has been a big swing away from metal towards new technologies and composites and that provides its own challenges, not just in the complexity of the loss but the cost of the repair of the actual equipment.”

For Langran, who underwrites aviation war risks, the geopolitical environment is creating a particularly challenging backdrop for insurers.

“We’re dealing with a more uncertain, volatile world, certainly in the class I underwrite – aviation war. We’re dealing with state-on-state conflict,” he said.

Louth, who has spent 25 years in aviation insurance, reflected on how the sector has faced major and highly complex losses throughout his career and questioned whether the underlying claims themselves were necessarily becoming more complicated.

“The political environment I think we’ve certainly seen a lot of turbulence in and change, but I’m not convinced the claims are getting any more complex,” Louth said.

He suggested the more significant change may be the consequences and costs associated with major aviation losses today.

“Possibly the consequences and costs of those claims is increasing,” he said. “We’ve seen aircrafts used as missiles, a modern day Titanic with an aircraft that just disappeared, there is some complexity there, but I think the market has continued to respond to these problems.

“We’ve managed all these things. We’ve offered a good product through all of those difficulties.”

Louth argued that the biggest transformation in aviation insurance has been technical rather than necessarily a fundamental change in the nature of claims.

“The big change in aviation insurance really has been at the technical and engineering level,” he said. “We have seen new costs emerge. We call these aircrafts 737s and A320s but they are 14 and 15 year old platforms. The products we are insuring are very different to that.

“Also, panel beating some aluminium is very different from a composite aircraft and the complexity and engineering involved in repairing those machines. If there has been a failure within aviation insurance, it has been underwriters getting to grips with some of the costs involved in those repairs.”

Hughes highlighted the breadth of risks insurers now have to consider.

“Insurers are facing a very challenging environment and there are two core reasons. One is the risk landscape around them is evolving and it is evolving very quickly and not just on the geopolitical front.”

“We’re also looking at increased complexities around cyber and connected systems, changing weather events and then there is the more intra-market perspective, which is a more challenging environment for underwriters and for claims teams.”

“Market conditions are evolving very quickly and that puts lots of pressure on maintaining underwriting discipline.”

The discussion also considers whether insurers have sufficient data to understand and price emerging aviation risks, particularly where historical loss experience is limited, plus how technology is transforming the sector.

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