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Soaring aviation traffic puts insurance market in flux

fueling jet

Increased traffic among charter and corporate aircraft is leading to more attritional losses in the general aviation insurance business and increased scrutiny by underwriters, who are seeing a higher volume of submissions.

The general aviation sector, which includes so-called Part 135 on-demand and charter flights, is also experiencing the tighter supply chains and labor constraints taxing the broader economy, which can extend repair times, compound congestion and potentially expose insurers to increased costs. 

Data on aircraft purchases and flight hours lags the reported surge in usage that accompanied the rebound from the COVID-19 pandemic (see related story below), but insurers say flights have risen in number. 

Purchases of new jets “are most certainly up,” and in pre-owned markets, prices for aircraft are increasing due to demand, said Doug Tibbs, Boston-based underwriting manager for Aerospace Americas at Axa XL, a unit of Axa SA. 

Howard Hamilton, regional product leader, North America, in Denver for Allianz Global Corporate & Specialty SE, said one charterer it covers in Arizona reported its most hours chartered ever in March 2021 and then surpassed that mark in October.

The increase in general aviation activity can also be seen in increased fuel demands. “Our clients who sell jet fuel have reported consistent records for gallons pumped, indicating that business jet, charter activity and private use are increasing,” said Kyle White, aviation practice leader in Kansas City, Kansas, for Marsh McLennan Agency, a unit of Marsh LLC.

Delays at companies that install and service avionics — aircraft electronics — are another measure of the sector’s increased traffic. “We insure many avionics shops, which have never had a further backlog for installation work than they have now,” Mr. White said.

Some insurance programs are growing because of increased flying.

“We are seeing more inquiries, and we are seeing the values of airplanes increase due to the market,” Mr. Tibbs said. He added that “when we’re presented with an opportunity that is charter-related, our exposure is higher because the airplane will be flying more.”

James Van Meter, Atlanta-based national aviation practice leader for USI Insurance Services LLC, said the brokerage’s clients are adding aircraft. “Our Part 135 clients are growing, adding more aircraft to fleets,” he said. “We’ve seen some policies grow from 10 aircraft to 15.”

Premium increases in the general aviation sector have largely been in parallel with the broader property/casualty insurance market, with rates rising for the past several quarters, although recently the rate of increase has slowed, Mr. Tibbs said.

According to USI, aviation premiums increased 15% to 25% at year-end 2021 and are forecast to rise 10% to 20% in the first half of this year.

The increase in Part 135 traffic has led to “more granular underwriting” with insurers asking more questions about usage, Mr. Tibbs said. “What is the plane being used for? How much is it flying and where?”

The increase in usage has also led to increased losses, sources said. 

“With utilization up, attritional losses will also be up,” said Mr. White of Marsh McLennan Agency, including, for example, from bird strikes and accidents while maneuvering aircraft on the ground.

“There is an increase in attritional losses with more movements,” said Mr. Hamilton of Allianz. 

Bird strikes are among the leading losses, Mr. Tibbs said, leading to a “substantial” number of claims.

Newer jets with more advanced electronics and carbon fiber parts also cost more to repair and the repairs take longer, which increases loss costs, sources said.

“There are composite materials in a lot of newer aircraft, as opposed to aluminum” in older planes, said Joshua Ray, head of general aviation North America in Atlanta for Allianz Global Corporate & Specialty. Dents or creases in metal can be repaired, but a similarly damaged composite part must be replaced, he said.

Repair delays brought on by supply chain issues and labor shortages also add to insurers’ costs.

With most aviation insurance policies for jet or turbine aircraft there is a provision for “extra expenses,” including for substitute aircraft, Mr. Van Meter said.

If repairs to a jet are slated to take three weeks but wind up taking three months, an insurer could potentially have to pay three months of extra expenses, including substitute aircraft, Mr. Van Meter said.

Peter Schmitz, Delray Beach, Florida-based managing director of JetSure USA LLC, said he is seeing “considerable interest” in JetSure AOG Replacement Aircraft Insurance. The product can cover costs incurred by a charter operator that must find a replacement aircraft, at a higher cost, to fulfill a charter contract.

“Demand has gotten out of control and operators are finding it difficult to satisfy their requirements,” Mr. Schmitz said.

Sector sees pandemic recovery

The COVID-19 pandemic hit air travel hard, but the general aviation sector, including charter flights and corporate-owned aircraft, returned to pre-pandemic levels much more quickly than the commercial airline sector, sources say.

“Generally speaking, from an airline perspective, COVID had a tremendous impact,” said Joshua Ray, Atlanta-based head of general aviation, North America, for Allianz Global Corporate & Specialty SE. On the general aviation side, however, “we saw an initial impact,” but after the first several weeks of the lockdown, “we actually saw a return to normal, pre-COVID-19 levels fairly quickly.”

“We started to see general aviation, after the first few months of the pandemic, really start to recover faster than the airlines,” said James Van Meter, Atlanta-based national aviation practice leader for USI Insurance Services LLC. The speedier recovery then led to an “uptick in general aviation activity as a whole,” he said.

The recovery was more pronounced in the charter market, classified as Part 135 by the Federal Aviation Administration, which went on to surpass pre-lockdown levels. Corporate travel on company owned fleets, classified as Part 91 by the FAA, returned to roughly pre-pandemic levels but did not show the marked increase in activity seen by Part 135, sources said.

Travelers seeking to avoid crowded commercial airliners found refuge in the charter market, they said.

“People who can fly privately and control with whom they fly, they want to do that from a health and safety standpoint,” Mr. Van Meter said.

“We saw a tremendous increase in the amount of Part 135 charters once individuals saw that flying on airlines became a problem,” Mr. Ray said.