Aviation insurance premiums too low to protect against catastrophic loss, warn industry experts
London, 14th February 2007
Low losses again in 2006, but little money held in reserve should disaster strike
Aviation insurance premiums are running dangerously low, according to industry experts, threatening the industry’s ability to cope with future major losses.
According to Ascend, the world’s leading provider of information and consultancy to the global aerospace industry, a fifth consecutive year of low accident numbers and low losses in 2006 has put severe pressure on premium rates. As a result Ascend is warning that the amount of premium income is only just enough to pay current claims, with nothing in reserve for the next catastrophe.
Ascend estimates that the aviation industry incurred losses of around $1.4 billion in 2006. The impact of this, and of four other similarly relatively benign years (2002-05), is that written premiums for airline hull and legal liability (at London lead terms) now fall below $2.0 billion. This is some $500 million below the level insurers have said they need in order to build up the necessary reserves.
“With premiums at their current rates the industry is running a real risk of being caught short. The past five years have been good for the industry in terms of safety, but it can’t afford to become complacent,” said Gehan Talwatte, Managing Director, Ascend. “The outlook is particularly worrying if you take away the 30% of the premium needed to meet market running costs and to provide a small profit. This leaves only around $1.4 billion to pay actual claims. So, even in a year like 2006 when, in insurance terms, little happened, the industry’s premiums only just covered the claim costs. Nothing is being put aside as cover for a major catastrophe.”
-ENDS-
Notes for editors
Early loss estimates tend to understate the final loss figure by around 10%, as IBNR (Incurred But Not Reported) losses come in which increase the cost of losses incurred over the coming years. For example, the current estimate of the cost of losses incurred during the five year period 2001-05 is around $11.25 billion, around $1 billion more than was estimated at the time.
