Analysts at specialist insurance broker McGill & Partners have examined the state of the aviation insurance market in 2021, noting that most firms will be seeking further rate increases to offset the difficulties of the past year.
With more planes grounded than in the skies, 2020 was an unprecedented challenge for aviation industry, McGill & Partners observed, and the near-term outlook in 2021 still looks bleak for insurers in this space.
The combination of differing efforts by Governments to vaccinate their population, with the geographically varied return of passenger demand and aircraft to service, shows signs of a varied recovery that remains largely uncertain.
In 2020 the aviation industry reported losses of $118 billion with demand down 65.9% versus 2019, meaning nearly 17,000 airliners were idled at the peak downturn due to the COVID-19 pandemic
The International Air Transport Association has warned that the industry is likely to continue to lose around $5 billion to $6 billion per month in 2021 and passenger numbers are only likely to fully recover by 2024.
“2020 was certainly a difficult year for airlines and their insurers. And it’s not over yet as many airlines continue to exist in survival mode in 2021,” said Joe Trotti, Head of Aviation and Aerospace at McGill and Partners.
“This is despite recent news of increasing domestic passenger demand in some countries such as the US which might suggest a recovery is beginning to take place. However, restrictions and closed borders in many countries are making timeframes for a full recovery unclear.”
Trotti continued: “Recently, we’ve seen many of the world’s biggest commercial airlines post huge losses and with travel restrictions still in place internationally it’s expected that these financial losses will continue in 2021. With the challenges faced by legacy carriers we are also seeing a disproportion emergence of start-up airlines worldwide taking advantage of the availability of both quality aircraft at attractive rates and qualified pilots and staff who are not currently working.
Even before the pandemic, many insurers had already been grappling with the ongoing lack of profitability of the airline class as well as significant manufacturers grounding losses over the past several years including the Boeing MAX loss.
And the restart of operation will also pose challenges for both airlines and insurers, as fleets will have to be restored to airworthiness following months of grounding.
“Underwriters are taking a keen interest in understanding these plans to return to service,” Trotti noted.
“Despite challenges the market continues to provide solutions, with ample capacity available from insurers. While the market remains challenging, there are underwriters who understand the environment and are working with brokers to provide a tailored approach to address these challenges.”