COVID-19 has significantly disrupted the aviation industry with most countries introducing travel restrictions and, in many cases, entire bans in an effort to limit the spread of the virus. Perhaps more than any other industry, the aviation sector is currently faced with unprecedented challenges which could potentially result in losses to the industry in excess of hundreds of billions of dollars. Routes are being closed, passenger numbers are dwindling, and fleets are being grounded. The implications to the businesses of the airlines, lease companies, manufacturers, airports and all service companies are enormous. The human and economic impact is potentially devastating.
With regards to the Aviation Insurance market, now is time to demonstrate true leadership and work collaboratively with clients to provide solutions, no matter how small, to help ensure the future viability of the aviation infrastructure, to support the global economy and to enable those companies and individuals who are part of the industry.
Faced with such challenges, companies should be engaging with insurers and discussing the impact COVID-19 has had on their operations, as well as any changes in risk profile and their interim plans. Exposures are materially different from those declared when policies were last rated and the majority of clients throughout the aviation sector will now be paying premium for exposures that simply are not there – and are unlikely to be there in the foreseeable future.
At present there is a view among many insurers that they are prepared to consider extending “premium instalment due dates” by 30 or more days however, our view is that it is not strategic or impactful enough and only serves to “kick the can” down the road.
Reflecting on the immediate aftermath of 9/11 there was an immediate need to “recapitalise” the aviation insurance market. At that time, insurers were faced with devastating losses and the airline risk management community responded and paid an additional $1.25 per passenger levy in order to assist insurers “reflate” their businesses. Considering the current environment, the insurance market is undoubtedly witnessing its customer base go through the most challenging conditions ever experienced on a worldwide basis and now is the time collectively act, step up and to do whatever we can to assist.
In order to have a strategic and informed conversation with insurers, clients and their brokers should be collecting data to present a compelling reason for premium alleviation or policy re-rating. Such detailed information would clearly be client-specific depending on individual circumstances but amongst other fundamentals could include:
- Claims activity
- Profitability or profit balance over 5 and 10 years
- Original and revised estimated exposure forecast
- Rating basis – some policies lend themselves to adjustments more than others
- The clients balance sheet disposition
- Cash flow
- What are the anticipated operating plans going forward?
- What is the risk profile given their revised operating plans?
- Status of prior year policy adjustments
- What is the interaction with the fleet whilst aircraft are grounded?
As clients choose to approach insurers requesting a solution it may be sensible to create a new structure that more accurately reflects exposures. Data and technology in today’s world provides an opportunity to far more accurately assess real exposure and charge accordingly.
At McGill and Partners we have some creative and innovative ideas that we would be delighted to confidentially share with you that address how we feel insurers should be proactively responding to the current unprecedented environment.
For a confidential discussion please feel free to contact:
| Contact Details | |
| Joe Trotti | joe.trotti@mcgillpartners.com +44(0)7503 630506 |
| Jeremy Kinsey | jeremy.kinsey@mcgillpartners.com +44(0)7901 233064 |
| James Camps-Harris | james.camps-harris@mcgillpartners.com +44(0)7810 455415 |
| Giles Wilkinson | giles.wilkinson@mcgillpartners.com +44(0)7901 232301 |
| Ian Fisher | ian.fisher@mcgillpartners.com +44(0)7503 629945 |
It is true that the Aviation Insurance market has been through (and continues to suffer) some incredibly difficult times in recent years. The market is still faced with some highly challenging losses but now is the time to show true leadership and work collaboratively with our aviation customers. Just like the world needs a thriving aviation industry, the aviation industry needs a viable insurance market. Now, similarly to the aftermath of 9/11 is time for all stakeholders to do their bit, step up, be creative, lead and find meaningful solutions that will truly help our customers navigate through these challenging times.
The contents of this publication, current at the date of publication set out above, are for reference purposes only and set out the views of the author. They do not constitute legal advice and should not be relied upon as such. Specific advice about your