Aon releases Airline Insurance Market Outlook 2014

Aon, in its Airline Insurance Market Outlook 2014, stated (Apr-2014) the significant gap between airline liability awards in the US and Western Europe compared with the rest of the world is narrowing and a major loss anywhere on the globe could the market very hard. Aon noted that average airline hull and liability rates fell by 10% in 2013/14, following an 11% drop in rates for 2012/13. Aon said that 80% of airlines enjoyed a reduction in their hull and liability premium, the highest proportion of reductions since 2001. The broker attributed the rate declines to "strong" underwriting competition, a relatively small number of claims and a record low number of deaths. Aon also noted, however, that while the number of claims was small in 2013, the USD1.5 billion paid out by insurers exceeded the USD1.4 billion premium they brought in. Aon said this was "the first time that has happened since 2010". Aon, in its report, stated: "The difference between premium and claims was minimal, and the fact that it was driven by a relatively low number of large losses means that not all underwriters will have a negative result on their books. This means that while there is unlikely to be an instant hardening, there is likely to be increased scrutiny". Despite this imbalance, however, the report suggests that insurance premiums could continue to fall in the short term, given that 2013 saw the lowest numbers of both airline incidents and fatalities since 1995. Aon said that the Malaysia Airlines flight MH370 carried more passengers (227) than the total global number of airline fatalities in 2013, highlighting the potential for catastrophic loss that the airline sector would always present. "At this early stage of the year, we believe it is unlikely that this incident will be a catalyst for a shift in current market conditions, however should there be another large loss or a string of losses this could change," Aon said. Aon expects competition to remain healthily for 2014/15 insurance programmes. Aon aviation and space practice leader Mike Smith said: "While it may seem like a contradiction that exposures are rising at the same time as insurance prices are falling, the introduction of the new generation aircraft a couple of years ago means that airlines of all sizes now have access to relatively modern fleet replacement options. These aircraft are more expensive but represent a risk reduction because they are safer and prices in the insurance market reflect this. At the same time, the aviation industry continues to improve technology and working practices, again driving down the price of risk". [more - original PR]