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It seems the media and news outlets today are all doom and gloom given the state the World has found itself  in at the start of the second quarter of 2020. The unfortunate reality is that the General Aviation market here in Canada is suffering the same fate as we are now in a full blown “hard” market following years of rate reductions with expanded terms and conditions. Rates and premiums are increasing and the so called “coverage creep” is being redressed with stricter terms and conditions as well as increased deductibles being imposed by the Aviation insurance community.

How did we end up here?

Essentially, through a series of events. It started from sequential years of incurred claims across all sectors of aviation, pushing insurers into unprofitability among their aviation portfolios. This in turn resulted in many insurers’ senior management taking the decision to exit the aviation insurance market, in turn reducing the overall capacity of the marketplace. The insurers that remain began shifting their focus to the remediation of their existing client base with a clear emphasis on profitability and exposure reduction.

What does the new market reality mean and what is the overall impact to HAC members?

The most profound impact will be increases to insurance rating and resultant premium. Loss free accounts and accounts that have been profitable over time will see the lowest rating increase, likely still in double digits percentages. Unprofitable and loss-making accounts could see increases in the high double digit and possibly into triple digit territory as Aviation Insurers are showing reservations on these accounts, especially where the business is new to them. Not only will rating be impacted, there is a large focus on the reduction in terms and conditions which may include the reduction or removal of lay-up clauses, profit commissions, additional expense coverages and other auxiliary coverages. Additionally, self-retention amounts like hull deductibles are being increased along with ancillary coverages deductibles and in some cases even introduced. The expectation to this is that insurers will take a favorable approach to accounts with stable procurement strategies to achieve long-term profitability with a reduced appetite for accounts that have frequently changed insurers on their panel in prior years. 

Now to address the elephant in the room, COVID-19. Although most of the media attention has been on airlines, it is clear this pandemic will have far reaching financial impacts to the General Aviation market here in Canada and many HAC members. These financial impacts are largely attributable to travel and flight restrictions imposed by the private and public sectors which at this point are expected to last weeks, if not months, plus delayed and cancelled contracts from organizations trying to manage their cash flow. From a coverage perspective, current hull and liability policies are not designed to protect operators against non-damage business-interruption financial losses. Broadly speaking, the hull section is designed to respond to physical damage to aircrafts and spares. Standard liability cover traditionally protects against claims for bodily injury or property damage caused on an “occurrence” basis which is generally defined “as an accident or exposure to continued and repeated conditions that result in bodily injury or property damage that are unexpected or unintended by the insured”. So, when speaking directly to the use and operation of an aircraft while a passenger is onboard and/or during the embarking or disembarking process, an operator could be found liable for passengers and/or third parties for the contraction of COVID-19. However, it would be very difficult for a passenger to prove that they contracted the virus on the aircraft or while embarking or disembarking, as opposed to any other point in their journey. The full impact of COVID-19 will not be known for some time, but as it progresses Globally as well as within Canada, it will continue to have a negative impact on all industries including General Aviation.

The combination of both the “hard” market and the COVID-19 pandemic has created a “perfect storm” with severe consequences to the General Aviation market here in Canada. The traditional risk management strategies of the “soft” market, or lack thereof, will no longer cut it. HAC members will have to focus on a holistic and entire enterprise risk management strategy which can be achievable by partnering with a well diverse and experienced risk management professional like Willis Towers Watson Canada, in order to cultivate and strategize the best possible outcome in the current insurance marketplace.

Author : Graham Marshall
Tel: +1 647 202 4431
E-mail: graham.marshall@willistowerswatson.com

The views expressed in this article are not necessarily those of Willis Towers Watson or any of their respective affiliates and do not constitute any type of professional advice.