The South African Aviation Insurance Market

By Anne Meadows, Aon South Africa’s Aviation Manager

The aviation insurance market worldwide is extremely limited in comparison to other classes of insurance.  Aviation insurance is highly specialised and extremely complex and it is therefore of paramount importance to only deal with brokers and Insurers who have the specialised ability to offer advice on and produce the correct products for the aviation insurance buyer. 

Looking at the South African insurance market, there are a mere five insurance companies who write aviation insurance and who mainly concentrate on general aviation risks as opposed to airline business. One of the main reasons is the exposure and the cost of reinsurance protection as aircraft accidents have the tendency to result in large property damage and loss of human life claims.  Aon’s Airline Insurance Market Outlook for 2016

If one analyses the state of the aviation insurance industry in some African countries such as Botswana, Tanzania or Zambia to name a few, in order to comply with local legislation the majority of the business is written as a reinsurance of one of the local insurance companies as this prevents business and income leaving the country.  The net retention that the local Insurers normally retain are small and in some cases they would even reinsure 100% of the risk holding no exposure whatsoever in fear of a large claim which may have a detrimental effect on the company’s underwriting profits.  The majority of rates offered by local insurance companies are reliant on what terms and conditions their Reinsurers have to offer and from past experience, they all have a very conservative approach to aviation risks, due to the large exposures that can emanate from a loss.

Lloyd’s is the hub and world market leaders in the aviation underwriting sphere both in terms of airlines and general aviation business.  This includes direct and reinsurance placements.  All direct insurance companies have reinsurance protections in one form or another which inevitably end up in the Lloyd’s of London market.  Lloyd’s have an impeccable reputation throughout the world for their expertise and their ability to assist customers with virtually any risk that they are approached on.

The aviation insurance market has for many years gone through soft and hard cycles and currently a soft cycle prevails which is brought about by fierce competition in the market place amongst the brokers.  Whilst this is not the only reason, there are other factors that influence hard and soft cycles in the industry.  The move to a hard cycle would need the aviation insurance industry to suffer major losses before the hard cycle would start to move forward.

Having said this, the big question which remains is how long the market can sustain the current rating levels and when it does turn hard, what effect will this have on the insurance buyer?  It will be advisable to take advantage of the soft market, but to put funds aside for the day that the market hardens. 

Factors that influence Aviation Rates

There are a number of factors that influence rates and premiums which include:

• The availability of capital commonly referred to as capacity
• The price of reinsurance protection
• Competition within the insurance market
• Specific claims history or as a whole
• Size of risk exposure
• Age and type of aircraft operated
• The country or region where the aircraft is being operated
• Other factors include utilisation, crew training and maintenance

Accurate information provided to the underwriter is critical to ensure successful and swift claims settlement.  However, non-disclosure of any material information will lead to underwriters repudiating a claim. 

Selection of Brokers

Aviation insurance is a highly specialised field and if you are an aircraft owner or operator seeking insurance you need to take the following into consideration when selecting a broker.

Ensure that the broker:

• has the knowledge and experience to deal with your insurance requirements;
• has the relevant staff and trained personnel to handle your queries at all levels;
• has access to all the aviation markets both locally and overseas;
• has the ability to be flexible in negotiating the right product at market going rates;
• is properly licensed and meets the requirements of being a financial services provider;
• has Professional Indemnity insurance in place;
• has the ability to respond quickly and efficiently in the event of a claim which is critical when a loss occurs.

The ability to offer aviation insurance has its advantages, especially in the corporate market where many prospective clients hunt for an insurance solution that offers all-encompassing cover across a diverse variety of risks.  However, the aviation insurance market comprises of only five specialist aviation underwriters.  What this essentially means is that prospective clients are very welcome to test the market but that it would be advisable to be prudent with the number of insurance brokers that are approached on aviation cover as they will invariably land up dealing with the same underwriter.

Rather do some research on the available aviation brokers in your area or who you feel will meet your expectations, then select two brokers to approach the market and from there select the broker who would best suit your needs.   By applying this approach, you would have achieved the best possible result. 

Aon’s Airline Insurance Market Outlook for 2016