The boom in air traffic is disrupting the insurance market
Increased traffic between charter aircraft and business jets is leading to increased attrition losses in the general aviation insurance industry and increased scrutiny by underwriters, who are seeing a higher volume of quotes.
The general aviation sector, which includes so-called on-demand flights and Part 135 charter flights, is also experiencing tighter supply chains and labor constraints that tax the wider economy, which can extend repair times, increase congestion and potentially expose insurers to increased costs.
Data on aircraft purchases and flight hours lag behind the reported uptick in usage that has accompanied the rebound from the COVID-19 pandemic (see related article below), but insurers claim that the number of thefts has increased.
Purchases of new jets “are most certainly on the rise” and in used markets, aircraft prices are rising due to demand, said Doug Tibbs, Boston-based underwriting manager for Aerospace Americas at Axa XL. , a unit of Axa SA.
Howard Hamilton, regional product manager, North America, in Denver for Allianz Global Corporate & Specialty SE, said a charterer he covers in Arizona reported its highest ever charter hours in March. 2021, then surpassed that mark in October.
The increase in general aviation activity also translates into an increase in fuel demand. “Our customers who sell jet fuel have reported consistent records for gallons pumped, indicating that business jets, charter business and private use are increasing,” said Kyle White, Aviation Practice Leader in Kansas City, Kansas, for Marsh McLennan Agency, a unit of Marais LLC.
Delays at companies that install and maintain avionics — the electronics of aircraft — are another measure of increased traffic in the sector. “We insure many avionics shops, which have never had any additional delays for installation work that they have now,” Mr. White said.
Some insurance programs are expanding due to the increased number of thefts.
“We’re seeing more and more inquiries and we’re seeing the value of the planes go up because of the market,” Tibbs said. He added that “when we are presented with a charter-related opportunity, our exposure is higher because the plane will fly more.”
James Van Meter, Atlanta-based national aviation practice manager for USI Insurance Services LLC, said the brokerage’s customers were adding planes. “Our Part 135 customers are growing, adding more aircraft to fleets,” he said. “We have seen some policies go from 10 planes to 15.”
Premium increases in the general aviation sector have largely paralleled the broader P&C insurance market, with rates increasing in recent quarters, although recently the rate of increase has slowed, has said Mr. Tibbs.
According to the USI, aviation premiums increased by 15% to 25% at the end of 2021 and are expected to increase by 10% to 20% in the first half of this year.
The increase in Part 135 traffic has led to “more granular underwriting,” with insurers asking more questions about usage, Tibbs said. “What is the plane for? How much does it fly and where? »
Increased use has also led to increased losses, sources said.
“As usage increases, attrition losses will also increase,” said Mr White of the Marsh McLennan agency, including, for example, bird strikes and accidents during aircraft maneuvers. on the ground.
“There is an increase in attrition losses with more moves,” said Allianz’s Mr Hamilton.
Bird strikes are among the top casualties, Mr Tibbs said, resulting in a “substantial” number of claims.
Newer jets with more advanced electronics and carbon-fiber parts also cost more to repair and repairs take longer, increasing downtime costs, sources said.
“There are composite materials in a lot of newer planes, as opposed to aluminum” in older planes, said Joshua Ray, head of North America general aviation in Atlanta for Allianz Global Corporate & Specialties. Dents or creases in the metal can be repaired, but a similarly damaged composite part must be replaced, he said.
Repair delays caused by supply chain issues and labor shortages are also increasing insurers’ costs.
With most aviation insurance policies for jet or turbine-powered aircraft, there is a provision for “extra expenses,” including replacement aircraft, Mr Van Meter said.
If repairs to a jet are supposed to take three weeks but end up taking three months, an insurer could potentially have to pay three months of additional expenses, including a replacement plane, Mr Van Meter said.
Peter Schmitz, managing director of Delray Beach, Fla.-based JetSure USA LLC, said he sees “considerable interest” in JetSure AOG Replacement Aircraft Insurance. The proceeds may cover the costs incurred by a charterer who must find a replacement aircraft, at a higher cost, to fulfill a charter contract.
“Demand has gotten out of control and operators are struggling to meet their needs,” Schmitz said.
Sector sees pandemic recovery
The COVID-19 pandemic has hit air travel hard, but the general aviation sector, including charter flights and corporate-owned aircraft, has returned to pre-pandemic levels much faster than the sector. commercial airlines, sources said.
“Generally speaking, from an airline perspective, COVID has had a huge impact,” said Joshua Ray, Atlanta-based General Aviation Manager, North America, for Allianz Global Corporate & Specialty SE. . On the general aviation side, however, “we saw an initial impact”, but after the first few weeks of the lockdown, “we actually saw a return to normal, pre-COVID-19 levels quite quickly”.
“We’ve started to see general aviation, after the first few months of the pandemic, really start to recover faster than airlines,” said James Van Meter, Atlanta-based national aviation practice manager for USI Insurance Services. LLC. The faster recovery then led to a “recovery of general aviation activity as a whole”, he said.
The recovery was most pronounced in the charter market, rated Part 135 by the Federal Aviation Administration, which then rose above pre-lockdown levels. Business travel on company-owned fleets, classified as Part 91 by the FAA, returned to roughly pre-pandemic levels, but did not show the marked increase in activity observed by party 135, sources said.
Travelers seeking to avoid crowded commercial airliners have found refuge in the charter market, they said.
“People who can fly privately and control who they fly with, they want to do that from a health and safety perspective,” Van Meter said.
“We saw a huge increase in the number of Part 135 charters once individuals saw that flying on the airlines was becoming a problem,” Mr Ray said.