Insurance Costs Continue To Fall for Aerospace Firms

 - June 6, 2011, 6:55 AM
Aerospace manufacturers, like Airbus with its European factories, including this A320 line in Hamburg, Germany, are enjoying falling insurance costs.

Aerospace companies trying to bounce back from the downturn face many challenges, including rising costs, but they are still enjoying one blessing: lower insurance costs. The latest “Aerospace Market Outlook” report from leading insurance group Aon Risk Solutions shows the industry now starting its fifth consecutive year of falling premiums.

According to Aon CEO Peter Schmitz, a big driver of this trend is that underwriters are giving companies credit for the improvements they have made in safety and risk management. “Aerospace continues to be a safe haven for capital providers,” he concluded. But everything is relative, of course. Another factor keeping premiums down is that capacity, i.e. companies competing to provide cover, is increasing once again as insurers view the sector as a less risky environment than others affected more directly by recent disasters, such as the earthquakes in New Zealand and Japan, and the floods in Australia.

Total premiums billed to aerospace companies for the 2010/11 insurance year reached $774 million, down from $797 million for 2009/10 (or $783 million on a like-for-like basis). During 2009/10, no insured company was lost to bankruptcy and overall only one firm disappeared from the insured list due to consolidation–indicating a period of great stability, in view of everything the industry has endured in recent years.

Among airlines, premiums have remained static overall. However, Aon said its data is distorted by a large drop in premium for one major carrier and that, in fact, average rates had increased by 5 percent. The value of airline claims last year ($2.1 billion) were quite high by comparison with recent history (an average of $1.5 billion annually since 1996) but the actual number of aircraft losses has remained below the long-term average.

One interesting element of the Aon data relates to the age of aircraft involved in accidents during 2010. Of all accidents, 56 percent involved aircraft that were 16 years or older (compared with an average of 41 percent in recent years). Incidents involving aircraft aged between 11 and 15 years accounted for 8 percent of the total (compared with an 18 percent average). But taking account of accidents involving fatalities, 48 percent were in aircraft under five years old (after being 60 percent last year), and 40 percent of these accidents were in aircraft aged between five and 10 years.