$300m hole in aviation insurance cover - industry experts warn premiums will have to rise
London, 16th January 2008
Low accident rate in 2007 but cost of claims leaps to outstrip premium income by 20%
Aviation insurers have been left with a potential $300m black hole in their accounts after a big jump in the cost of claims in 2007, according to analysis by industry experts.
Ascend , the world’s leading provider of information and consultancy to the global aerospace industry, is warning that airline insurance rates have now fallen so low insurers must raise premiums in the coming year.
Ascend estimates that, despite a fall in the number of accidents, airlines incurred losses of around $1.8bn in 2007, up $400m on 2006. The five most serious accidents, including the crash of a TAM Airbus A320 in Sao Paulo, Brazil in July and a Kenya Airways B737 near Douala, Cameroon in May, are alone expected to cost airline insurers almost $700m. Whilst the cost of claims soared, insurance premium written during the year actually fell by 10%. As a result premium income for airline hull and legal liability for 2007 only came to about $1.5bn, $300m less than the claims. Aviation premium income has fallen by more than half since 2001 after six consecutive years of low accident numbers.
“The leap in the cost of claims last year should be the jolt needed to bring some sense to the market,” says Paul Hayes, Director, Ascend. “Premiums have been falling since 2001. This has created an unsustainable situation where not only is the industry failing to bring in enough money to cover the cost of claims during a year, but nothing is being put aside as cover for a major catastrophe. It is no surprise that we are beginning to see some insurers walk away from the airline market and most reducing the capacity they are willing to use for airline business. It all points to a market that has bottomed out: rates must increase, the only question is how sharp the rise will be.”
-ENDS-
Notes for editors
Copies of the full report – Ascend Special Bulletin: Aviation Safety Report 2007 – are available on request via email.
