Aviation Insurance Outlook for 2011 – Are Rates on the Rise?

Overall the aviation insurance market is flat.  While there isn’t a single underwriter who does not want to raise premiums, over capacity and the sluggish economy is keeping rates in check.  In addition, the poor performance of other Property and Casualty segments of the industry appears to be dampening any tendency by the reinsurance market to move money to other market segments. Still, as reinsurance agreements are negotiated, those underwriting companies who are operating in the red could see a rise in the rates they pay which will likely impact consumer rates.

Last year saw what may be the beginning of some consolidation which is necessary to reduce the number of markets in the aviation segment.  One major company left the aviation market all together and another sold its aviation book to an existing underwriting company.  This eliminated the two most aggressive underwriting companies as regards pricing.  However that was offset by a couple of underwriting companies either re-entering the marketplace or expanding their underwriting appetite.

The major difference between 2011 and 2010 is subtle but significant.  While underwriters are willing to do what it takes to keep their preferred clients – those with good loss histories, strong flight departments, and excellent risk management practices—they  aren’t pursuing new business opportunities as aggressively as they have in the past.  Simply stated, they have stopped chasing business they have little chance of keeping.  Again, they are willing to competitively bid on the preferred operators, but will simply pass on risks that would have to be priced aggressively in order to win.  The only exception to this seems to be the preferred operator who is looking for a better home and long term relationship.

Commercial Helicopter and AMS operators saw a significant premium increase last year driven primarily by the segments loss history.  That trend could continue for other than the preferred operators.  Municipal and government operators appear to remain competitive.  Owner flown turbine and piston helicopters appear flat at this time.

On the fixed wing side, corporate turbine operators with strong flight departments and risk management practices remain the gold standard of preferred clients.  With the noted exception of those with less than favorable loss histories, most fixed wing operators are seeing renewal terms “as expiring.”  That includes both commercial and private, turbine and piston aircraft operators.

A key indicator of a return to a hard market could be in pilot training and pilot qualification requirements as the underwriters try to stem losses through tighter risk management requirements.  However, this will likely be accompanied by a modest rate increase.

As regards fixed base operators, maintenance providers will be the first to see rising rates, most likely in their products and completed operations liability insurance premiums.  The FBO that provides only fueling and hangaring services, like the corporate turbine operator, will continue to get the interest of most underwriters in the market.  However, when the market turns, this alone will not protect them from rate increases.

The bottom line is that, if the economy improves, there is a likely hood that premiums could start a modest rise.  Even without a single triggering event or the re-insurance market tightening, all the ingredients for higher rates are in place.  It may be prudent for all aviation operators to budget accordingly.

About the Author:  Jim Gardner is a retired US Air Force officer and professional pilot.  He currently works as an aviation insurance specialty broker with JSL Aviation Insurance in the Atlanta, GA area. Visit Jim’s website at www.JimGardnerAviationInsurance.comfor other articles and information on aviation insurance.

©Copyright. 2011.  Jim Gardner. All rights reserved.

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