The lack of air travel caused by the coronavirus (COVID-19) may have completely changed the risk profile of aviation underwriting books, with data from Gallagher showing that more than $164 billion of aircraft insurable value is currently parked on the ground.
With so much value sitting stationary and unused, it suggests the risk has moved away from exposure accidents and failures.
Instead, the aviation industry will be increasingly exposed to risks on the ground while this shutdown lasts, including weather and natural catastrophe events such as hail, tornadoes, windstorms, and hurricanes.
The International Air Transport Association (IATA) currently estimates the financial impact of COVID-19 on the air transport industry to be around $252 billion.
However, Gallagher noted that the true impact on aviation may well be as much cultural as financial, as the public’s appetite for travel will inevitably take time to recover.
There are likely to be airline failures as a result of this trend, meaning unpaid premiums and bad debt that will ultimately have to be managed by insurers and brokers.
Gallagher further noted that the timing for aviation underwriters couldn’t be worse, as the market is still trying to recoup on some of its recent sizeable losses.
“For Hull War insurers, the growing number of grounded aircraft makes for eye-watering aggregate exposures,” the broker stated in a recent report.
“Keeping a tab on these numbers is challenging, especially at a time when airline schedules are effectively rendered obsolete.”
Looking at 20 of the world’s largest airports, Gallagher reported that there are likely to be 2,278 aircraft on the ground in these locations, with an estimated fair market value of $109.59 billion and an estimated insured value of $164.39 billion.
Airports in Asia appeared to accrue the most exposure, with Singapore, Hong Kong, Seoul and Beijing ranking among the highest for the number of units on the ground, as well as their estimated insured value.
