Nigel Weyman, Aerospace Global Executive at re/insurance broker Gallagher has reported that aviation renewal negotiations were particularly challenging this year due to the impacts of the COVID-19 pandemic.
Speaking as part of Gallagher’s Plane Talking Q4 edition, Weyman described the market as facing a “perfect storm” over 2020 as the coronavirus crisis left aircraft fleets almost entirely grounded and severe travel restrictions were imposed.
For insurers, there was a corresponding significant drop in premium revenue coupled with continued major loss activity and the fear that attrition losses were not reducing proportionally.
“The reaction from insurers was, for the most part, swift and sympathetic, but there can be little doubt that renewal negotiations were far more complex and challenging than those of prior years,” Weyman explained.
“As brokers, we were exceptionally busy trying to obtain maximum relief for our clients, amending policies and re-negotiating with insurers (where possible) large numbers of contracts to reflect a range of bespoke solutions including, immediate reductions in deposits, return premiums, extended terms of credit and extensions of policy periods at special low premium levels.”
According to Weyman, renewal negotiations mainly focused on the minimum premium levels needed for re/insurers to remain in the market.
“The undeniable fact is that the vast liability limits required by clients and huge fleet values at risk (all with unlimited reinstatements) require substantial capital commitments and reinsurance programmes that, added to normal business costs, make a minimum income level vital for insurers,” he noted.
Rate increases were therefore much higher than would have been expected without the impact of COVID-19 and were combined with overlying minimum premium requirements that pushed dollar premiums close to pre-COVID-19 levels despite an average 30% to 40% reduction in exposure forecasts.
“These have been some of the toughest and most impassioned negotiations that the market and clients have experienced for decades,” Weyman added.
But despite the financial difficulties brought by COVID-19, Gallagher continues to view the biggest threat to aviation insurers as the potential disruption to personal relationships between clients, brokers and insurers, which the market heavily relies on.
“We need to ensure that in this new world these relationships are retained in order to preserve that continuity of partnership that the loss of face to face meetings can gradually erode,” Weyman said.
“Insurance of this nature is so much more than a simple commodity and it demands careful guardianship to keep its cost and coverage at the optimal level. It is therefore imperative that we as an industry do not overlook this.”