BUSINESS Insurer Integrity in a Tough Market By: Bill Behan, Chief Executive Officer, AssuredPartners Aerospace ny buyer of aviation insurance who has been purchasing coverage over the past several years will recall the swings in market pricing that have occurred—swings normally associated with catastrophic events or protracted periods of low rates charged by aviation insurers. The number of excessive aviation losses has indeed risen dramatically over the past five years, which, combined with the dozen-year period that insurers have charged rates lower than actuaries suggest their long-term costs require, has resulted in a so-called “soft market.” This means that, today, we’re facing the results of both excessive aviation losses taking their toll upon the insurance and reinsur- ance community, along with the cumulative effect of protracted soft-market rates that have depleted insurers’ reserves within their aviation pools. A Recently, aviation insurers around the world were required to pay a cash call of $1B to replenish the avia- tion underwriters’ supply of funds to pay claims. This may be the first time since the post-9/11 era that such a provision has been enacted; but, the impact of specific catastrophe claims is driving insurers to pressure the market with much higher rate increases than previously predicted just six months ago. Many insurers are propos- ing 20 to 40 percent increases to their commercial clients when, just three to six months ago, rate changes were half those levels. As the year continues, it will be interest- ing to see just what the outcome may be as insurers try to determine how much is enough. Insurers who have joined the legacy markets over the past dozen years have led to competitive pricing for con- sumers in the U.S. Now, however, some of those newer insurers find themselves in uncharted territory—chal- lenged to fulfill promises they made to the U.S. aviation insurance market, with consumers facing higher pricing, Aviation Business Journal | Fall 2019 service issues, claims issues, or potentially unavailable coverage. Promises to participate, as a reputable busi- ness partner in the largest aviation marketplace in the world, are only fulfilled over time and with demonstrated performance. Now is the time we look to all insurers to perform as we should expect, i.e. as responsible businesses that treat customers and business partners with rational under- writing changes as needed to reduce expected losses and with appropriate pricing adjustments for much-needed coverages. In the past, when insurers increased insur- ance costs excessively, competition usually increased from new insurers that found the aviation insurance marketplace attractive. Insurers that are unable to maintain their commitments to consumers and busi- ness partners will likely find themselves without much support as that additional capacity seeks a share of the world’s largest aviation market. Merriam-Webster defines integrity as “a firm adher- ence to a code of especially moral values.” We’re sur- rounded by insurers, most with integrity, that will support policyholders with their promise to perform when called upon to do so. But, this will be a challenging time for some aviation businesses over the next few years as underwriting tightens and insurance costs increase. Meeting with an insurance underwriter is a wise sug- gestion and one which most insurance brokers would recommend for sizable commercial clients. If an aviation insurance underwriter is familiar with your risk, your operation, and your tolerance for risk, then the underwriter will be able to make better deci- sions regarding any policy insuring your business. Integrity of insurers and their underwriters, at this time, speaks volumes for successful long-term relationships Continued on page 18 17
