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Promising outlook for aviation insurance: Swiss Re Institute

23rd June 2022 - Author: Kassandra Jimenez-Sanchez

Despite recent challenges, the outlook for the aviation insurance industry looks promising, with an estimated premium growth of 4-5% per year to 2030, according to a new report by Swiss Re Institute.

Aviation imageIn addition to this, with airlines’ investment in greener and safer new aircraft, the Institute sees growing opportunities for the market.

Yet, the global drive for decarbonisation, and the related trend of travellers looking for alternatives to flying are emerging challenges.

The war in Ukraine combined with the grounding of planes during the Covid-19 pandemic has impacted the industry.

Some 500 aircraft currently in Russia are leased from international firms. The outcome of the evolving situation is uncertain and does not negate the tailwinds that will boost growth in aviation insurance over the longer-term, the report noted.

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However, air traffic is rebounding strongly, and passenger and cargo numbers are expected to grow over the long term, benefiting aviation insurance exposure.

Combining cargo and passenger traffic, the commercial aircraft fleet is forecast to rise from around 25,000 aeroplanes in 2019 to close to double that number in 2040.

That corresponds to a compound annual growth rate of around 3.1%. More aeroplanes flying means a larger premium opportunity for insurers.

The Institute estimates global nominal gross written premiums in aviation (and space) insurance could grow by 4% to 5% annually on average to 2030 in nominal terms (0.7%-1.7% in real terms). This is based on economic growth forecasts, and the expected increases in air passenger traffic and aircraft fleet size.

Investment in greener and safer planes was the result of airlines using the lull in traffic during the pandemic to renew their passenger aircraft fleets. Which created additional near-term opportunities for insurers, noted the report.

Another long-term tailwind for insurers is the uninterrupted historical downward trend in air travel accidents, which is likely to continue and so reduce the frequency of claims.

However, claims severity has gone in the opposite direction, as aircraft become increasingly valuable due to growing complexity in their design and manufacturing process, and with social inflation.

Lastly, the Institute expects green taxes to increase and airlines to work to fly more sustainably. Because of this, air fares may rise resulting in lower demand, but it may also make air travel more attractive to the environmentally conscious.

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