March 11, 2004 by Canadian Underwriter
A new report by international broker Aon suggests the global aviation market is facing a very uncertain future with premiums falling last year.
Aviation losses were down in 2003 to the lowest level in history in 2003, and rates fell by 18% as a result. But this reduction in losses belies the serious potential exposures faced by the sector, including terrorism risks, Aon’s aviation division says. “While we have seen insurance premiums for airlines fall, this should not be seen as a reduction in the threat that major airlines face from terrorism networks worldwide,” says Justin Priestley of Aon’s counter terrorism and political risk team.
2003 saw some further market withdrawal, although capacity was sufficient to meet demand, but overall premiums dropped to US$2.65 billion. This is just above what is considered the acceptable minimum premium level for the industry, US$2.5 billion.
“With the ever-present potential for further losses, insurers pulling out of the market and the growing impact of terrorism, the aviation insurance market is in a precarious position,” says Doug Peterson, chair of Aon’s aviation division. “It is unlikely that insurers will maintain the 2003 premium rate reductions that we saw throughout 2004.”