Gallagher warns that Covid-19 could ‘act as a catalyst’ for rate increases translating into a harder global insurance market 

Aviation and travel insurance have been heavily impacted by the pandemic and lockdown measures to mitigate the spread of the coronavirus. 

This includes London-based airline Virgin Atlantic yesterday filing for bankruptcy, just months after its sister company Virgin Australia filed for voluntary administration back in April.

It is just part of the fallout that the aviation industry is experiencing during the ongoing Covid-19 pandemic, and one that will have a knock-on effect on the aviation insurance industry which includes travel insurers as passenger demand plummets.

The airlines demise follows an unsuccessful appeal to the government for bailout after it revealed that it would run out of money come September, which in turn saw the airline’s founder Sir Richard Branson offering to mortgage his private island, according to the Mirror.

Back in May, Virgin Atlantic announced that it was cutting 3,000 jobs or up to third of its workforce as well as not using Gatwick Airport, as it battled to stay afloat.

It follows a survey from Gallagher highlighting the insurance portfolios that most concern underwriters with aviation tipped as being one of them.

Meanwhile, industry experts in Insurance Times’s ‘Big Question’ this month, also earmarked travel insurance as being one of the most affected lines during the pandemic. 

Sustained soft market

Last month Gallagher’s aerospace team published a report ‘Plane Talking: A Specialist Risk Publication for the Aviation Sector’ as the UK was unwinding from lockdown.

In this report Peter Elson, the broker’s chief executive in aviation sounded hopeful he said that despite the challenges of the Covid-19 pandemic that he remained “confident that the aviation insurance industry will come through its current challenges”.

However, by August new challenges surfaced with lockdown still in place in the UK. This meant that although some flights had resumed, the travel industry was still hard hit and unable to operate at full capacity.

Gallagher’s report cited that despite the long and sustained soft market, poor profitability in aviation and exceptional claims activity that the position in the second quarter of 2020 remained the same with the pandemic adding ongoing pressure.

It stated: “Looking ahead post lockdown, with the expectation that the overall loss to the insurance industry will be substantial, it is reasonable to assume that Covid-19 will act as a catalyst for rate increases and may translate through to a harder global insurance market.

”Just how this will impact the aviation class it is too early to say, however, we were already experiencing market hardening and upwards pricing pre-Covid-19 and therefore any added pressure or future change in capacity could exacerbate this trend.

“In the aviation class, the direct impact of Covid-19 on aviation insurers is relatively small (when compared to their aviation clients and colleagues in other lines of business) in that pandemic losses are not covered under traditional aviation insurance policies.

”That is not to say that the pandemic is not having an impact on aviation insurers as it is. Aviation is arguably one of the industries most impacted by the pandemic and the damage done will take some years to recover.

”The aviation market is relatively small in size and so the impact of any casualties, coupled with a forecast decrease in future passenger demand and exposures will undoubtedly result in a significant drop in premium income levels for insurers, at least in the short term.”

But the overall impact on the insurance market and aviation insurers will depend on how long the pandemic lasts.

Insurance Times’s order of events as Covid-19 impacts the aviation insurance industry

March 2020

May 2020

June 2020

July 2020


Market exits 

The report also highlighted that as the second quarter draws to a close capacity, levels have also reduced further following the withdrawal of four markets.

This includes Cincinnati Global Syndicate 318 stopping accepting new or renewal aviation business, Antares has exited the class, Trust Re has ceased underwriting Facultative Aviation business, and Starstone International and its operating companies have stopped writing new and renewal business which put its business into immediate run-off. In addition to this Sompo International will cease writing business in Lloyd’s from January 2021.

In contrast to this there has only been one new entrant – Rokstone Underwriting, an MGA which underwrites aviation business using its existing carrier Best Meridian International Insurance Company (BMI) and a panel of reinsurance markets.

Also, ratings agencies began to publish negative outlooks for property and casualty and global reinsurance sectors which included downgrading some insurers.

Read more…The Big Question July/August 2020: What lines of business will harden or be most exposed following Covid-19?

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