February 1, 2021 by Greg Meckbach
The drop in international air travel is not causing a corresponding decline in aviation insurance claims costs, a Calgary-based commercial specialty expert warns.
Meanwhile, airlines will not see sales return to pre-pandemic levels even after most Canadians get their COVID vaccine, Canadian commercial insurer executives predict. That means aviation insurers could see a drop in premium volume if airlines start to lose or go out of business.
“If Canada were to lose 5% to 10% of its air carriers, that is a significant amount of premium lost to insurers,” said Alex Barker, Calgary-based head of specialty and aviation for AXA XL Canada, in a recent interview with Canadian Underwriter.
Barker was interviewed before the federal government announced restrictions intended to discourage recreational travel outside of Canada.
As quoted by the Canadian Press on Jan. 29, Prime Minister Justin Trudeau said that Air Canada, WestJet, Sunwing and Air Transat will suspend service to all Caribbean destinations and Mexico until April 30. That suspension took effect Jan. 31.
CP reported that starting this week, all international passenger flights arriving in Canada can only land at one of four airports – Vancouver, Toronto, Calgary or Montreal. Moreover, all arriving international passengers will soon have to quarantine in an approved hotel for up to three days at their own expense while they await results of a COVID-19 test taken at the airport.
Last week’s announcement “really was the nail in the coffin for the airline and tourism business,” said Robert Kokonis, founder and managing director of aviation consulting firm AirTrav Inc., as quoted by CP.
As a result of the COVID pandemic, business in global aviation is down by more than 50% by any metric, AXA XL’s Barker told Canadian Underwriter Jan. 20 in an interview about major risks in aviation.
“Has a 50% drop in operations resulted in a 50% drop in claims? No. It’s quite dramatically different. If you had asked me that pre-pandemic, I would have hazarded a guess that claims costs might drop in proportion to the drop in operations,” said Barker.
One reason why is that aviation insurers are still exposed to property damage claims from severe weather. A case in point is the hail storm that hit northeast Calgary June 13, 2020.
“A lot of high-value aircraft that were expensive to repair were on the apron [at Calgary International Airport] that day, said Barker. [An apron is essentially the tarmac area at the airport, other than runways and taxiways].
With the reduction in operations due to the pandemic, aviation firms are going out of business, Barker observed.
“One issue COVID is raising for the aviation insurers is survivability of the client base. Aviation companies are very costly to run because of expenses such as servicing and maintaining the aircraft. Those costs have not gone away but revenues are down.”
The impact of COVID on travel and hospitality clients was on the minds of insurer presidents who participated in a Canadian Underwriter webinar Jan. 25
“The hospitality business, travel, and tourism have been drastically impacted by the pandemic as we can all see, whether that is the airlines or hotels,” Matthew Turack, group president of insurance at CAA Club Group, said during the webinar, Canada’s P&C Industry in a Post-COVID World.
Panelists were asked whether there would be a quick bounce-back for certain industry segments most affected by the pandemic, assuming most Canadians get vaccinated against COVID by September.
“I do not believe it is a quick bounce-back,” said Turack. He suggested revenues for the travel and hospitality industry depend on the pandemic situation outside of Canada.
“This is not [a case of] the COVID vaccine comes out in Canada, we get a large percentage [immunized] by September, and then we all just jump on a plane and start travelling,” said Turack. “Yes, there is a pent-up demand. I would love to go travel to some of the places. But there will be a long duration [until] we feel safe and we are ready to do that.
“What is the post-COVID period when we feel that the pandemic is over? It’s a very hard thing to define. We tend to define it when vaccinations are out, or maybe when people return to the office. But I think there is a long period before we truly get to a post-COVID world or if we ever get to a truly post-COVID world.”
Also on the webinar was Carol Jardine, president of Canadian operations at Wawanesa Mutual Insurance.
“I am certainly not hopping on a plane to go to Winnipeg,” she said, amplifying Turack’s point about taking some time before feeling safe to travel. “Air Canada is calling me asking me if I am still alive. I tell them, ‘Yes, I am, but I really don’t want to travel on an airplane and run the risk of being [off-side of the] best health care information we can get, so I think what’s happening right now is everyone is assessing their risk.”
Feature image via iStock.com/EllenMoran