Aviation insurers face growing claims challenge

Although air disasters are increasingly uncommon, small, but increasingly expensive claims are on the rise.

The airline industry has enjoyed an ever-improving safety record in recent years, which has led to a decline in major claims – but a rise in smaller losses is causing a growing headache for underwriters.

The increasing number of smaller, attritional claims, “could cause a real long term impact to the aviation insurance market”, says Toby Brymer, Hiscox London Market’s Aviation Claims Underwriter.  

These attritional losses result from a range of mishaps, from slips and trips in airports, to damage to aircraft, or accidents to ground handlers. There are also more claims from passengers experiencing problems during flights. “In my experience insurers appear to be seeing more personal injury claims from passengers arising out of hard landings and in-flight turbulence,” says Brymer.

A sky high compensation culture

As air travel continues to grow exponentially – there were nearly 4 billion air travellers in 2016, according to The International Air Transport Association (IATA), which expects that figure to grow to 7.2 billion by 2035 – it’s no surprise that the number of attritional claims will increase. But what worries insurers is that these types of claims are becoming both more frequent and more costly, because of the growing compensation culture.

The growing complexity of the new generation of airliners also makes everyday events more expensive. 

“A Boeing Dreamliner makes extensive use of carbon fibre reinforced plastic within its airframe, which may have pushed up repair costs for aircraft that have suffered a bird strike or an accident on the ground,” says Brymer. “Repairing these aircraft appears to be increasingly time consuming, which will mean higher labour costs to pay for the expert technicians to work on the aircraft. It can also result in them being out of action for a longer time which may potentially trigger a ‘loss of use’ claim as well.”

The availability of spare parts for older aircraft is also considered by some to be a problem, which has also pushed up claims values for older-generation planes.

The growing level of small-scale claims is gnawing away at a premium base for the airline insurance market

Pressure on ground handlers

Another major cause of rising attritional losses is the growing pressure on airports' ground handlers to turn around aircraft as quickly as possible, says Brymer. “All these on-the-ground tasks, such as catering, cleaning, baggage handling and refuelling, need to be completed quickly to make sure there are no delays. This time pressure could lead to an increased chance of accidents occurring, whether it’s a truck colliding with the wing or engine of an aircraft, baggage getting damaged or going missing, or ground handlers getting injured.”

Static deductibles

The growing level of small-scale claims is gnawing away at a premium base for the airline insurance market that, some would argue, is already less than the total amount paid in claims.

“Compounding the problem is a failure of insurance deductibles to keep up with rising aircraft values over the last few years, particularly for wide-bodied aircraft,” says Brymer. However, given the persistent soft state of this market, there is unlikely to be an increase in deductibles for the foreseeable future.

The insurance industry is now under more pressure than ever to make sure that attritional claims are correctly and fairly adjusted for all parties. “The challenge is to ensure that attritional claims are managed more efficiently and effectively while trying to keep costs under control to prevent the premium base from being further eroded,” says Brymer. Otherwise, he concludes, the market’s profitability and ability to provide quality cover, is threatened.

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