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Survey Report

Insurance Marketplace Realities 2020 Spring update – Aerospace

Aerospace
COVID 19 Coronavirus

May 7, 2020

The current economic and travel lockdown introduces unprecedented challenges to an already correcting market.
Rate predictions
  Trend Range
Airlines Increase (Purple triangle pointing up) +25% to +50%
Aircraft lessors/banks Increase (Purple triangle pointing up) +5% to +15%
Product manufacturers and service providers Increase (Purple triangle pointing up) +15% to +30%
Airports Increase (Purple triangle pointing up) +15% to +30%
General aviation Increase (Purple triangle pointing up) +25% to +50%
Space Increases to be expected, percentage range not applicable

Key takeaway

The current economic and travel lockdown introduces unprecedented challenges to an already correcting market.

International Air Transport Association (IATA) has predicted that the airline sector alone could face losses of well over $250 billion.

  • Prior to the outbreak, insurers continued to look for financial recovery after a long period of market unprofitability. Given these circumstances, however, the market is contemplating various premium relief measures. While positive news during these uncharted times is certainly welcome, the extent and feasibility of such premium relief remains unknown. As of this writing, each client situation is being considered on a case-by-case basis.
  • COVID-19 aside, upper management at insurance companies continue to press underwriters on account profitability and to justify writing new business. Long-term profitability is their objective. Now more than ever, relationships are key.
  • Buyers who have shopped and changed their program year after year are facing significantly reduced insurer interest. Risk managers should meet with insurer(s) well in advance of renewal dates (whether telephonically or virtually), in addition to providing fully detailed underwriting submissions. In this market, transparency and differentiation are essential.

Airlines: Rates continue to increase as this sector remains unprofitable.

  • Attritional claims and large loss reserves continue to erode the global premium, forcing rate increases well into double digits.
  • While capacity remains sufficient, merger activity among insurers and market withdrawals pose a threat to future capacity.
  • Drastic rate corrections show the sense of urgency felt by underwriters, with many anticipating further consolidations or withdrawals.
  • Lead market pricing is no longer relevant, as each insurer operates by its own underwriting standards and protocols.

Aircraft lessors/banks: Overall market conditions have begun to impact this segment, causing conservative rate increases across the board.

  • This segment of the aerospace market was the last to harden.
  • Capacity remains satisfactory, especially for those with favorable loss histories and fleet growth.
  • For the foreseeable future, insureds can anticipate ongoing rate increases and pressure to eliminate program enhancements granted in the soft market.

Aircraft products manufacturers and service providers: Increases should be expected for both non-critical and critical part manufacturers.

  • Ongoing aircraft groundings and extensive loss reserves continue to create uncertainty in this sector.
  • Premium gains are at the forefront of underwriters’ minds, even on those accounts with no loss activity.
  • Stricter policy wording is being introduced to clarify coverage, namely limitations on grounding liability as well as cyber liability exclusions.

Airports and municipalities: Shock-losses have put this segment on the radar of insurers’ upper management.

  • This sector continues to harden, with increases beginning at 15% on profitable accounts.
  • Coverages that were once industry-standard add-ons during soft market days, such as excess employer’s and auto liability, are being reassessed, with carriers lowering excess limits or deleting them entirely.
  • Many horizontal placements are now being placed vertically due to insurer desire to pull back capacity in this sector.
  • Creative structuring is more prevalent, with excess layers over working layers becoming increasingly attractive to insurers.

General aviation: This sector is experiencing the highest rate increases across the board, especially in the rotor wing sector.

  • Consistent loss activity and high-profile losses continue to erode years of soft-market premiums, which were well below profitable levels.
  • Rotor wing operators can anticipate limit reductions from incumbent markets and declinations from new markets as underwriters fear adding helicopter exposures to their books.
  • Capacity continues to shrink as notable insurer withdrawals shake the industry and upper management enforces more rigid underwriting guidelines.
  • Pilot experience is being closely scrutinized, with insurer appetite for single-pilot operations decreasing significantly and broad pilot-training requirements being a thing of the past.
  • Anticipate many enhancement pull-backs and limit reductions, particularly on extra expense coverages and premium credit opportunities, in addition to increased requirements for simulator-based training.

Space: This segment has stabilized following correction in 2019, though increases can still be expected.

  • Mispriced policies, not excessive losses, drove this correction.
  • The market continues to focus on re-establishing annual market premium income at ~$800M (currently at ~$650M).
  • Reinsurance treaty renewals were successful despite some decline in total market per-risk capacity.
  • More underwriting constraints should be expected, including a focus on loss criteria and policy wording.
  • Baseline rates are increasing on all accounts, regardless of loss history.
  • While underwriting is more disciplined, capacity is still available and new business still being sought.

Disclaimer

Each applicable policy of insurance must be reviewed to determine the extent, if any, of coverage for COVID-19. Coverage may vary depending on the jurisdiction and circumstances. For global client programs it is critical to consider all local operations and how policies may or may not include COVID-19 coverage. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal and/or other professional advisors. Some of the information in this publication may be compiled by third party sources we consider to be reliable, however we do not guarantee and are not responsible for the accuracy of such information. We assume no duty in contract, tort, or otherwise in connection with this publication and expressly disclaim, to the fullest extent permitted by law, any liability in connection with this publication. Willis Towers Watson offers insurance-related services through its appropriately licensed entities in each jurisdiction in which it operates. COVID-19 is a rapidly evolving situation and changes are occurring frequently. Willis Towers Watson does not undertake to update the information included herein after the date of publication. Accordingly, readers should be aware that certain content may have changed since the date of this publication. Please reach out to the author or your Willis Towers Watson contact for more information.

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