Arresting a Dangerous Descent for Insurers After more than a decade of annual declines, aviation insurance rates may be leveling off. BY BILL BEHAN, CHIEF EXECUTIVE OFFICER OF AIRSURE LIMITED F or the first time since 2006, widespread rumors of aviation insurance cost stabilization are being heard from multiple sources. The reasons vary; but, suf- fice it to say, after a decade or so of reductions, it appears the catastrophes associated with hurricanes, fires, earth- quakes, weather and other major losses over the past several years may have hardened underwriters’ resolve to increase premiums across underpriced product lines. And General Aviation (GA) will most likely be no exception. Consider the metrics: In January 2006, seven companies in the United States were underwrit- ing insurance coverage for general aviation air- craft and businesses. Today, there are nearly 20. However, during that same period, there have been 8% fewer active GA aircraft to insure and 9% fewer GA businesses—not to mention fewer active pilots and even fewer airports operating. In sum, there are cur- rently more insurance companies competing, but they’re competing for an increasingly smaller market. The competition between these companies has been intense and has favored buyers of insurance (the insureds)—as this competition has manifested itself in the form of annual reductions in premiums. This has caused insurance companies to use price as a major point of differentiation to retain customers. In insur- ance industry terms, this is known as a “soft market.” There are currently more insurance companies competing, but they’re competing for an increasingly smaller market. Aviation Business Journal | 4th Quarter 2017 For buyers of aviation insurance, a soft market can seem like a windfall; and, after years of annual reduc- tions, an expected windfall at that. However, for the underwriting community (the insurers), it simply isn’t sustainable forever. Simply put, without some sort of cost stabilization in the price of premiums, we can expect to see an eventual controlled flight into terrain for insur- ers—meaning many of the companies currently provid- ing coverage will either be lost, or simply choose to forgo aviation and select other lines of business to underwrite. Now, if you’re an insured who looks at insurance as a necessary evil and may only have contact with your pro- vider once or twice a year—you may say: “So what? We can live with a few less insurance companies, right?” Possibly. But there is usually a cost associated with a smaller mar- ket. A loss of insurers means less places your insurance broker can turn to for coverage. Fewer options mean, at best, higher premiums and, at worst, no available coverage at all. Healthy aviation insurers are necessary for aircraft and aviation businesses to operate profitably. Having a Continued on page 50 49
