In 2016, significant safety or security events have posed challenges to the airline industry. In March, Flydubai Flight 981 en route from Dubai, UAE to Rostov-on-Don, Russia crashed during its second landing attempt. All 7 crew members and 55 passengers were killed. And in May, Egypt Air Flight MS804 mysteriously disappeared, with 56 passengers and 10 crew members on board, while en route from Paris, France to Cairo, Egypt.1 While terrible human tragedies, these events were, statistically speaking, highly unusual. Indeed, the vanishing of the Egypt Air flight is not what is thought of as a “typical” airline accident.
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These tragedies are statistically infrequent and serve as an opportunity to examine the long-term resiliency of the airline industry and recent long-term gains in safety.
More and more passengers are flying every year. Almost 3.3 billion globally in 2014, according to the International Civil Aviation Organization (ICAO).2 That number marked a 5.5% increase over 2013.3 Competition for passengers is fierce. Airline margins, even in good years, remain tight, at around 2% to 3%. Despite this year’s major tragedies, the industry’s impressive safety record over the years has helped keep premiums at attractive levels. Given the industry’s tight margins, pricing for aviation insurance will continue to be an important consideration for industry buyers. But it is not the only factor in purchasing decisions. Risk management among airline companies is highly sophisticated, and this sophistication is reflected in their demands for coverage. As Rob Sage, AIG’s U.K. Head of Underwriting Aerospace, points out, “In addition to price, buyers were until recently also looking to broaden their coverage. However, after the spate of recent losses, price has once again become key with some buyers, even though rates are significantly lower than they were pre-9/11. The more sophisticated buyers will always be looking for the broadest cover available even if there is a cost for that.”
Coverage for Cyberthreats
One growing area of interest for many industry buyers has been protection against cyber-attacks. Cyberthreats have become ubiquitous across most, if not all, industry verticals, and aviation is no exception. It is not difficult to imagine the kinds of damage, and not just financial, that could be caused by a major security breach at an airline or airport. As the rate and sophistication of cybercrimes and the threat of cyberterrorism grow, the risk profiles of airlines and airports are changing, and industry buyers are adjusting their risk management strategies to accommodate those changes. A number of companies in the insurance industry, including AIG, have responded by providing a number of offerings to help meet these evolving needs.4
In addition to cyberthreats, risk managers in the aviation industry are seeking to broaden their coverage in other areas as well. These range from potential liabilities relating to pollution from de-icing and fuel storage to situations involving, for example, the loss of GPS satellite communications data, which airlines rely on for navigation and terrain mapping.
Importance of Claims Handling in Aviation
As the aviation industry grows in both size and complexity, the importance of claims handling has grown. As recent incidents illustrate, when things go wrong in the industry, they can go very wrong – along multiple dimensions. Risk managers in the industry look for insurance partners that can help them navigate the sometimes labyrinth-like claims process as quickly and as painlessly as possible, so that necessary liquidity is available when and where it’s needed. Some providers outsource the claims handling function, while others, such as AIG, handle it with experienced internal claims teams. Buyers should lean toward whichever provider they believe will partner with them best in a crisis.
The aviation industry will continue to evolve in order to meet the ever-increasing demands of the flying public. In the process, industry risk managers will need to continue to regularly assess their organizations’ risk profiles to help ensure they have the breadth of coverage they need.