European Union: General Aviation Insurance Market Outlook: Q2 2024

Despite several challenges, healthy insurance capacity creates benign conditions for general aviation operators. Things can change quickly though.

The general aviation insurance market presents a mixture of issues, some of which are present across the entire aviation sector, and some of which are specific to the individual sub-sectors or regions.

The crisis between Russia and Ukraine and the changing geopolitical conditions generally, particularly on the war market, are having considerable influence on discussions in the general aviation sector.

Overall though, the general aviation sector is enjoying relatively positive interactions with the insurance markets.

The crisis continues

The ramifications of the escalation of the crisis between Russia and Ukraine two years ago continue to reverberate around the entire aviation sector. The imposition of sanctions meant that the leasing companies were unable to recover their assets from the Russian operators. More than 500 aircraft were estimated to be involved and the lease companies lodged claims under their insurance policies to recover their value.¹

While the legal sensitivities surrounding the issue have meant that details have been relatively scarce, some of the issues were resolved in 2023². There are several court dates scheduled for the next few months, so there is a reasonable expectation that more of the issues will be resolved before the court dates arrive.

At this stage, it is impossible to say what the final cost to the insurance markets will be, but what started out as potentially one of the largest and most complicated claims in aviation history³ appears to be calming. Irrespective of the final cost of the insurance claims though, the way that insurance policies for leased aircraft are worded is likely to evolve considerably over the next few years.

The hull war and war liability market

Meanwhile, geopolitical tensions have risen in several other parts of the world. This has led to significant increases in costs in the war market as insurers try to ensure sustainable premium levels.

Rising prices have attracted several additional insurers to offer war coverage

Rising prices have attracted several additional insurers to offer war coverage, often in conjunction with offering participation on the hull and liability placement. This has increased options on many placements and put competitive pressure on insurers that were already active in the war market. As a result, after two years of sustained increases, there was a slowdown in the price increases in the final quarter of 2023.

War pricing had fallen to a very low level prior to the start of 2022, so while price increases are likely to continue in 2024, discussions in the market suggest that the rate of increase is likely to be lower, in the absence of another major geopolitical event.

Looking ahead, it seems likely that insurers will face restrictions on the sub-limits they can accept in respect of Extended Coverage Endorsement (Aviation Liabilities) AVN52E. We expect that further restrictions may be imposed upon them by reinsurers in the final quarter of 2024, limiting this to USD250 million, down from the current USD350m. This will require brokers to purchase Excess Aviation War Liabilities for clients who buy liability limits in excess of USD250m.

Ramifications for general aviation insurance

Despite this confluence of issues, in the absence of an unexpected event, we expect general aviation insurance will remain relatively stable in 2024. Some insurers may start the year trying to maintain their discipline, but the high level of available capacity is likely to reduce their resolve, notably in the U.S. where capacity remains robust as insurers look to expand their general aviation portfolios, focusing on safety-driven organizations that can demonstrate a thorough understanding of their exposures.

Insurers will be quick to push back as they work to ensure that their portfolios are balanced..

Overall, the benign conditions mean that general aviation organizations with a good loss record and a pro-active risk management strategy may be able to negotiate enhanced conditions on their hull and liability policies. Negotiations are always robust however, and insurers will be quick to push back as they work to ensure that their portfolios are balanced.

Rotor-wing

The offshore rotor-wing sector suffered several notable losses in 2023 and so far in 2024⁴. Insurers are scrutinizing their portfolios to ensure that they understand the specifics of their exposure and how it is being managed.

There is also increased focus on supply chain issues, particularly in the offshore rotor-wing sector with one of the energy majors issuing a paper highlighting operational, although not safety, concerns.⁵ This is a significant challenge for the sector, and there is increased discussion about the risk that some operators could have to ground parts of their fleet due to a lack of parts and servicing. Where a fleet is comprised of several of the same types of helicopter, a fleet grounding can have significant implications, forcing the re-tasking of other assets and challenges honoring contractual obligations.

From an insurance perspective, groundings can also raise a credit risk, because non-active aircraft can impact both premium levels and premium payment. Furthermore, cannibalizing aircraft to keep fleets operational can have further ramifications as grounded aircraft are at a greater risk of loss from weather events if they are unable to be moved. With the World Weather Information Service (WMO) predicting yet another record-breaking year of hot temperatures, the industry must brace for more heatwaves, floods, wildfires, and tropical storms as 2024 continues to unfold.⁶

Fixed-wing

Corporate jets endured a challenging year from a safety perspective in 2023, with runway excursions highlighted as a particular area of concern⁷. There has been particular focus on the line up and wait (LUAW) instruction in the U.S.

There is also awareness across the aviation industry about the shortage of experienced pilots and crew, a challenge that has been exacerbated by COVID-19 This could have an impact on business jet organizations as others across the aviation industry look for ways to attract staff, but the issue is being widely discussed at events such as the WTW Airport Risk Community's 4th Annual Airport Conference held in London at the end of 2023 .

The capacity entering the aviation insurance market as a whole has helped helicopter operators, but support for corporate jets has been more constrained so far. This tends to reflect the value of the aircraft hulls involved and the potential size of liability limits, which tend to be higher in the event of an incident.

The rise in geopolitical instability has also led to focus on hotspot flying, where jets are used as part of relief efforts. Due to the increased risk that operations of this nature can present, we would recommend having a discussion with insurance and risk management partners before commencing.

A complex future environment

Further away from the insurance markets, the aviation industry continues to be under scrutiny from an environmental perspective. It is responding in several ways, but one of the most interesting points to make is that small jets such as private or corporate jets are most likely to move to more environmentally sensitive propulsion systems in the near term. The technology does not exist to sustain long-haul flight yet, as we discussed in this recent set of articles , but small and regional jets could well be quick to make a transition. This leads us to a fascinating situation where small jets could become one of the most environmentally sustainable modes of transport.

Small jets could become one of the most environmentally sustainable modes of transport.

This could potentially be even more positive if the current pace of development of electric vertical take-off and landing (eVTOL) vehicles is sustained. The signs seem positive, with one company striving to make its commercial debut at the Paris Olympics this summer,⁸ demonstration flights taking place in New York⁹, the Civil Aviation Administration of China recently issuing the world's first eVTOL aircraft type certificate¹⁰, a recent agreement between an eVTOL provider and Dubai to operate air taxi services exclusively in the emirate for six years¹¹ and the decision by the Helicopter Association International, the 75 year old trade association for helicopter operators, to rebrand itself as Vertical Aviation International.¹²

The technology is at a relatively early stage in its development, but the insurance sector is ready to support its evolution.

Overall, the general aviation sector is in a relatively strong position, with a healthy amount of insurance capacity available and mature risk management and emergency response protocols in place. Conditions can change quickly however, so we would advise clients to take every opportunity to actively engage with their insurance partners.

Footnotes

1. Western sanctions have stranded hundreds of airliners worth an estimated $12 billion

2. Five Russian airlines have returned leased jets-document,

3. Assessing the airline insurance implications of the crisis between Russia and Ukraine

4. Helicopter with 4 on board crashes in Gulf of Mexico,

5. Industry says parts shortage affecting North Sea helicopters not a safety concern,

6. UN weather agency issues ‘red alert' on climate change after record heat, ice-melt increases in 2023,

7. Runway Incursions Involving Business Jets on the Rise Due to Misunderstood Instructions,

8. Volocopter to launch electric air taxis in time for Paris 2024 Olympics,

9. From yellow cabs to sky cabs: Air taxis take a Big Apple test flight,

10. China issues the world's first eVTOL aircraft type certificate to Ehang's EH216-S autonomous vehicle ,

11. Joby to Launch Air Taxi Service in UAE ,

12. Helicopter Association International (HAI) Has Rebranded As Vertical Aviation International,

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.