Airline insurance rates will not rise despite BA crash

Last week’s incident at Heathrow will not increase airline insurance rates despite low premium levels says a Lloyd’s underwriter. Passenger aircraft accidents are at their lowest levels since 1963 and there has been a 20% fall in aviation passenger fatalities.

According to the Aircraft Crashes Record Office’s annual report, there were 136 worldwide accidents in 2007, 28 lower than 2006 and the smallest number for 44 years*.

Since 2002, major western airlines have modernised their fleets thereby filtering newer aircraft into the secondary airlines market. Investment in the airport infrastructure across the emerging economies has also increased safety levels.

Aviation insurance rates have been falling for the past five years and overcapacity in the market has added further pressure. Many leading aviation insurers, including a number at Lloyd’s, have reduced their capacity in this sector.

Chris Wood, Aviation Underwriter at Lloyd’s managing agent Chaucer, says the removal of some capacity has seen the slide in prices start to halt.

“There remains a lot of capacity in the market and as such rates are not increasing,” he explains. “There are a few geographical areas where there are particular loss concerns so there has been a small increase of rates in these.

“In recent years leading underwriters have reduced the amount of capacity they allocate to the airline sector and it has seen rates firm a little. However, there remains enough capacity for the risks to be placed and the hope is that rates will start to increase.”

On the impact of the BA 38 incident at Heathrow, Wood says he does not believe there will be any material change.

“My personal view is that it will not in itself see rates increase but it may well make underwriters think about the pricing of the business they write,” he adds.

In a recent trading update from Amlin, competition in the sector is described as high, and they have reduced their client list as a result.

“The Amlin airline portfolio has been reduced to a core number of clients. It now accounts for approximately 1% of gross premium income”.

“We believe that the airline insurance market as a whole made a loss for 2007, despite a lack of major airline disasters, and this should increase pressure on our competitors to raise future rates to more appropriate risk adjusted levels.”

Broker Aon, in its aviation market report for the end of 2007, said the airline market is set to make a loss for the 2007 year of account and that the market will have to wait until the April renewals – when a number of the major airlines place their coverage for 2008/9 – for any real indication of an upturn in rates.

* Figures relate to planes able to carry at least six passengers and crew. The number of fatalities was 965, which is down 225 on the previous 12 months and the lowest since 2004.