A report from aviation insurer Allianz Global Corporate & Specialty SE finds that while the skies are arguably safer than ever, there are a number of emerging risks that will impact carriers and insurers. Until last year's string of atypical aviation disasters (among them Malaysia Airlines flight MH17, in which 283 passengers and 15 crew members perished after it was reportedly shot down by a missile over the eastern Ukraine, and the disappearance of Malaysia Airlines flight MH370, including its 239 passengers and crew), the industry's safety record has improved to fewer than two passenger deaths for every 100 million passengers. Over the last 60 years, the industry has seen a decline in accidents as technology and training improved. By today's estimates, there is a greater chance of dying while riding a bicycle (1 in 340,000) than dying aboard an airplane in the U.S. (1 in 29 million). Even the odds of being killed by lightning are higher—1 in 10.5 million.
The greatest risk still comes from the human factors that affect safety. These include: pilot fatigue, pilot training and crew resource management. Approximately 70% of commercial fatal accidents are still due to human error, despite many technological developments. Crew fatigue contributes to about 15%-20% of the accidents, and a number of initiatives will continue to improve safety efforts.
While the majority of large aviation insurance claims—those totaling more than $1.36 million—are the result of plane crashes (23%), another 18% of claims are related to ground handling, and 16% can be attributed to mechanical failure. Ramp accidents cost airlines approximately $10 billion a year and poor communication seems to be at the root of most incidents.
A 10-year analysis of crashes from 2003-2012 found that 57% of accidents occur during descent and landing. Twenty-four percent of accidents happened during takeoff and climbing to altitude, and 9% while cruising.
Emerging Risks
While the safety numbers are generally trending well for the airline industry, there are a number of emerging risks that could be a concern for aviation insurers. The greatest risk (35%) involves business interruption and supply chain, such as damage to machinery. Other major risks include market stagnation and increased competition, and regulatory changes.
Pilot shortages
The increased demand for air travel means airlines have to find hundreds of thousands of new pilots in the coming years. CTC Aviation, a major trainer in the industry, estimates that the increase in airline fleets will require hiring more than 235,000 pilots over the next seven years. A Boeing report estimates that 498,000 will be needed within the next 20 years. As training can run up to six figures, the cost to airlines will be substantial.
Wild weather
Another emerging risk involves the weather—or increased turbulence, to be exact. Climate changes will impact the North Atlantic corridor, and flights across the Atlantic will see an increase of 40%-170% more turbulence. Severe turbulence can cause structural damage to planes, a cost already estimated at about $150 million per year.
Lithium-ion batteries
The use of lithium-ion batteries continues to be an issue for the Boeing 787 Dreamliner. Incidents where the batteries have burned, causing electrical problems and major fires on planes, still have not been resolved. The batteries are susceptible to cold temperatures and can deteriorate, resulting in a short circuit. As more and more passengers use batteries in their cell phones, computers, cameras and other electronics, authorities say that one small, poorly made battery is enough to explode and start a fire on a plane.
Unmanned aerial vehicles (UAVs)
Drones are becoming far more common as the military and civilians use UAVs for professional and personal use. Collisions, third-party damage or injuries are the primary risks, but insurers have little information to go on when it comes to underwriting. One white paper that investigated a 10-year period involving unmanned military aircraft accidents found that the number of Class A mishaps (those resulting in “death, permanent total disability or damage of at least $1 million”) rose from 21% in 2004 to 50% in 2011. Pilot/human error and hardware failures were the primary reasons for mishaps. With the FAA planning to incorporate UAVs into U.S. airspace in 2015, the number of incidents could increase as more civilians begin using them.
Wildlife
Birds and planes don't mix well, and neither do cows and zebras on the runway. Bird strikes cause an estimated $400 million in damage annually in the U.S. and $1.2 billion worldwide. Airports are using sounds, lights, dogs and decoys to discourage bird populations, and even capture and relocation services to move the birds to safer nesting sites.
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