Charles Hollingworth, executive director for global aviation and space at WTW, examines trends in the airline insurance market.
The airline insurance market is in a state of flux, divided between new entrants that are eager to establish their position, and legacy insurers balancing the need to remain competitive against the reality of long-term portfolio underperformance.
Trying to predict market behaviour is always a treacherous endeavour, but this article seeks to provide context and clarity around current market direction.
The early April airline hull and liability insurance program renewals are often a signpost to insurers’ aspirations for the balance of the year. This is perhaps more pronounced in 2025 than in previous years, as the renewals highlight the challenge faced by insurers who are seeking to quote rate increases against the backdrop of relatively high capacity.
Insurers with longer-tail business in their portfolios are under significant pressure as old underwriting years deteriorate beyond modelled parameters and legacy losses start to bite. There are still notable open claims dating back to 2018 that are currently being finalised. These historic claims could influence insurers’ current balance sheets and underwriter behaviour simply because it is not possible to apply retroactive remediation, and this could suppress their appetite for airline business more widely.
Newer entrants, perhaps drawn to the market by the relatively benign level of claims activity during the pandemic and facing a less complex aviation portfolio dynamic, are potentially faring better. Without exposure to the historic airline claims, these insurers’ strategies are more likely to be geared toward growth, because from their perspective the current rating levels are adequate.
That said, many insurers will be under significant pressure following the spate of aviation losses at the end of 2024 and in early 2025. These losses put the airline sector, and indeed the entire aviation industry, into the spotlight, with both the airline all-risks and the airline hull war classes coming under scrutiny from insurers’ senior management. This is directly influencing insurer appetite and reinforcing underwriting discipline and resolve to seek rate increases.
The interplay of these competing issues, appetites and circumstances on insurers makes placements less predictable and, in some cases creates a two-track market with the ambitions of new entrants tempering the efforts of legacy insurers to increase rates. There is little doubt though that negotiations are more challenging now than they were 12 months ago.
RISING ATTRITIONAL COSTS
The claims position is further complicated in that while major claims were trending down before the end of 2024, the cost of attritional or minor losses has been rising for some time. Modern airframes are now mostly built from composite materials, which are far more expensive to repair than traditional materials such as aluminium.
A key challenge is the related supply chain and availability of workshops equipped with the hardware and trained staff to complete such repairs. Using modern materials and manufacturing processes undeniably makes flying safer and more efficient for both passengers and crew. However, the cost of repairing or replacing parts when there is a minor incident is considerably higher than it would have been a couple of decades ago.
In addition to material costs for hulls, supply chain deficiencies and high engine values are also driving much higher repair costs for non-major claims. According to WTW observations, minor events that previously may have cost less than $5 million to remedy are now estimated to have the potential to lead to claims exceeding $20 million. Many insurers are thought to be reconsidering the loss amount that would fall within the definition of ‘minor’ or ‘attritional’, but this hasn’t yet flowed through to general remodelling or recategorisation of attritional loss value thresholds.
How will rising business costs affect aviation?
Meanwhile, businesses globally face a less certain outlook as economies come to terms with the rapidly evolving international business landscape, which will have implications on an already strained global supply chain. From an aviation industry perspective, this is unlikely to ease the trend of rising repair costs. Aircraft parts and components are manufactured across the globe, and it would not be unusual for a European aircraft to need repair in the U.S., or a U.S. aircraft to need repair in Asia, and they would need replacement parts, which could be subject to tariffs.
Another issue that has been influencing market sentiment and appetite over the last few months is the Russia leasing claims. It appears that some of these cases are close to being resolved, with confidential settlements being favored by some insurers.
While the cases being settled prior to the conclusion of the legal processes may immediately sound positive, the reality is that the legal process is extremely expensive for all parties involved, not just insurers, and the increased visibility within insurer organisations will emphasise the expectation for improved underwriting discipline from senior management teams.
