The aviation insurance industry is threatened by a reality gap between client and market expectations, says Jim Ratcliffe, managing director of the Aerospace division of Willis Group.

Speaking at the annual DYP International Airline Conference, Ratcliffe warned of trouble unless the emphasis in aviation insurance markets was quickly moved towards value rather than distressed pricing.

"Airline management has mixed objectives," he said. "The CFO wants balance-sheet peace of mind, and the risk managers want the lowest price. Both undervalue or misunderstand the opportunity."

Ratcliffe pointed out that the rate of change in the aviation industry ruled out waiting for an upturn in the cycle.

"For the airline insurance industry, the cycle is not going to be the saviour. Insurers need to focus on strategic partnerships and the creation of products which support capital markets.

"At the same time, electronic commerce will become the channel to reduce costs and improve service and quality levels."

Meanwhile, he added, brokers need to become relationship marketers, building understanding between consumers and suppliers and taking on the role of product innovators.