Munich, July 31, 2024: Covid-19, the energy crisis, Russia’s war - to say that the aviation industry, and its insurers, have had to face significant challenges in recent years is an understatement. However, aviation has rebounded well with several 2023 parameters showing “best ever” safety results. This year, the volume of global air passengers is expected to hit an all-time high (+10.4% year-on-year), driven by Asia-Pacific and North America. While the general outlook for the industry is positive, there are still lots of challenges to tackle, according to Allianz Commercial’s Aviation Risk, Claims and Insurance Outlook.

The aviation sector produces some of the highest value and high-profile claims across the corporate insurance sector around the world, the report notes. Analysis of more than 32,000 industry claims from 2019 - 2024 with a total value of US$15bn (€14bn) shows that collision or crash incidents (63%) and faulty workmanship or defective products (22%) are accountable for 85% of the value. Other incidents like natural catastrophes (4%), machinery breakdown (3%) or fire (1%) account for a much smaller proportion of claims by value.

“The aviation market is in an interesting and possibly unprecedented place with the traditional market cycle having been interrupted by the impact of the pandemic and wars. The continual growth of the aviation sector will see premiums hit a 20-year high in 2024 of more than US$8bn,” says Tom Fadden, Global Head of Aviation at Allianz Commercial. “We see a growing interest in multinational insurance, and more enquiries for international insurance placements for entire programs across lines of business, driven by increasing geopolitical and regulatory concerns and a desire from clients for a highly managed insurance structure. Yet dark clouds continue to hover for insurers with well-publicized losses and inflation pressurizing bottom lines.”

Soaring repair costs, lack of mechanics, runway, and ground incidents an increasing issue

There has been a significant increase in aircraft repair costs in recent years, driven by higher labor rates and the cost of aircraft parts, among other factors, such as inflation. The shift to next generation aircraft continues to impact claims, especially when it comes to engine disassembly and repair costs. Furthermore, a growing shortage of aircraft mechanics may impact future claims activity. It may take longer to complete repairs if vendors lack manpower, or efficiency. More less-experienced mechanics on the line could mean they do not have the ability to repair a part, meaning it will need to be replaced with a new one, which typically is more costly.  An obvious concern is the shortfall ultimately leads to an accident, despite the systems of checks and balances in place in the industry.

“One also cannot ignore the fact that runway excursions are trending higher in 2024 than in 2023, with at least 23 reported globally through January to May 2024. Causes include weather issues and technical problems,” says Cristina Schoen, Global Head of Aviation Claims, Allianz Commercial. “There has also been a noticeable rise in ground handling claims at large airports worldwide. Elsewhere, while ‘air rage’ claims have plummeted since the pandemic, we see an increase in damage claims resulting from the growing demand for helicopter trips and getaways.”

SAF and eVTOL aircraft takeoff but compliance is the main lever to reach Net Zero targets

Aviation contributes around 2% of global emissions and is focused on its sustainability efforts, pledging to reach Net Zero by 2050. The lack of a silver bullet solution for decarbonization should not take away from the exciting developments underway. Sustainable Aviation Fuel (SAF) continues to attract a lot of attention with mandatory targets starting to be implemented. Improvements on existing technology continue to advance apace, as do innovations. The market for eco-friendly electric vertical takeoff and landing (eVTOL) aircraft, which can transport passengers or cargo, is set to grow significantly in the future – the first insurance coverages for operational uses are likely to be placed this year. Yet one unheralded development that could force as greater accountability as any technological advancement is the development and subsequent implications of the European Union’s Corporate Sustainability Reporting Directive (CSRD) and similar regulations worldwide. They require companies to disclose comprehensive information on their environmental, social, and governance (ESG) performance and impact.

“Standardized reporting may foster investor and stakeholder confidence in the industry and the best performing companies, demonstrating industry leadership in decarbonization. Most importantly, it should improve sustainability practices across the sector. Companies will be forced into engaging with the topic by such accountability. Investment will surely follow engagement,” says Adam Tozzi, Head of Underwriting Global Tasks and Processes, Aviation, at Allianz Commercial.

“Allianz has all the fiscal sophistication and disciplined balance sheet protection that you would expect of a global insurer that has been offering financial strength and support to our aviation customers for over a century,” concludes Fadden. “As the 110th anniversary of the issuance of our first ever aviation insurance policy approaches, we continue to be laser focused on volatility management, risk selection, detailed sub-segment steering and being a stable and long-term partner to our clients.”