Airline insurance market seeing significant pricing pressure – Gallagher Specialty

Hull war and third party liability coverages in the aviation sector are experiencing significant pricing pressure as reinsurance renewals at the beginning of the year saw rate increases. 

This was according to broker Gallagher Specialty’s latest Plane Talking Q1 2023 report, released yesterday (12 April 2023), which suggested that the airline insurance market was in a state of flux, with various factors impacting the industry.

One of the major factors affecting the airline insurance market is the increase in airline disasters in recent years.

The airline loss experience in 2022 saw the majority of claim events involving small local or regional carriers, explained the report.

However, 2023 “got off to a poor start” when a Yeti Airlines ATR 72-500 crashed while on final approach at Pokhara International Airport, Nepal, killing all 72 on board.

The report stated that this was to be the only fatal passenger loss of the first quarter and all other loss activity was far less remarkable.

However, the broker added that the outlook for this year was uncertain, with the potential for future market hardening and underwriters focusing on terms, exposures and policy coverage.

Reinsurance market hardens

Gallagher Specialty’s report also highlighted that reinsurance “capacity has reduced – particularly for third party liability war – and reinsurers are imposing strict coverage restrictions and limitations”.

It said the the aviation reinsurance market was “going through a period of seismic change” and the landscape remained complicated.

Negotiations for renewals woud be challenging, it said, with the market needing to prepare for “further market hardening.”

Aviation insurers are bracing themselves for a challenging 2023, with triple-digit price increases seen for both clean and loss impacted programmes, said the report.

This rate hardening was the result of significant back year prior claims deterioration and the ongoing spectre of sizeable contingent losses.

With reinsurance capacity tightening significantly, particularly for war covers, reinsurers are focusing on both coverage and pricing, subjecting coverage to much tighter restrictions and limitations while pricing has gone up significantly on expiring levels.

Insurers have indicated that an increase in primary airline rates will be needed as a result, said the report.

However, it noted that this has failed to materialise across the board.

Insurers that have already renewed their reinsurance programmes in 2023 are pushing for higher pricing to offset their increased costs and protect their margins, but the overall impact is being suppressed by the ”appetite of their peers who are yet to renew their reinsurance”, according to the report.