Despite record numbers of more than four billion passengers, the global airline industry has experienced some of its safest years in terms of fatal accidents, according to the recently released "Aviation Risk 2020: Safety And The State Of The Nation" report published by Allianz Global Corporate & Specialty (AGCS) in association with Embry-Riddle Aeronautical University. The report, which analyzes more than 50,000 aviation insurance industry claims worth more than $16.3 billion from 2013 to 2018, reveals that collision/crash incidents currently account for over half the value of all claims (57%) equivalent to $9.3 billion — and over a quarter of claims by number (27%). Additionally, aviation insurance claims are increasing in frequency and severity, a reflection of higher values, increased repair costs, and rising liability awards. The volume of claims is also a reflection of growth in air transport, with increased passenger numbers and more congested airports, as well as growing demands on airlines, manufacturers, and ground services. Headline improvements in safety have helped drive down the cost of insurance for airlines and manufacturers, but given the ongoing frequency of attritional claims and rising severity, this means the industry's annual claims total outstrips its annual premium. According to AJ Gallagher Aerospace, worldwide airline passenger numbers increased by 139% between 2003 and 2017, while worldwide airline hull and liability premiums reduced by 64%. This equates to an 85% cut in the cost of insurance per passenger. |

More sophisticated technology is driving higher value and cost of repairs

The increasing sophistication of new generation aircraft is leading to more expensive aviation insurance claims. In particular, more complex engines and new materials can be costly and more time-consuming to repair, driving up the cost of repairs and groundings. Aircraft values have increased significantly in recent years, a reflection of more sophisticated engines and the growing use of composite materials in airframes. Repair costs for new generation aircraft are now much higher than their predecessors. Modern engines, in particular, are increasing in value. Composite materials, such as carbon fiber layers bonded with resin, are strong and light, and therefore help improve fuel efficiency. However, the claims experience has revealed a higher repair cost associated with composite materials, which are generally more expensive to manufacture than traditional metal alloys, more labor-intensive to repair, and often require a larger repair area. Changes in manufacturers' business models, as well as technical and regulatory considerations, are also affecting the cost of repairing engine and aircraft damage. As a result, insurers are seeing a trend towards replacement, rather than repair, of damaged aircraft components. Increased complexity and changes to manufacturers' business models are also leading to longer repair times. This has implications for insurers, but it has a massive impact on the airline that needs to find an alternative engine or aircraft. |

Growing potential for larger liability awards

Liability claims per passenger have soared as U.S. plaintiff attorneys aggressively seek higher awards from a wider range of incidents. Liability awards have risen dramatically. The rule of thumb for general aviation operators was $1million to $3 million per passenger seat 10 years ago. Today, in certain circumstances, the numbers can be much higher than that. With fewer major airline losses, plaintiff attorneys are fighting over a much smaller pool and are putting more resources into fewer claims, pushing more aggressively for higher awards, and looking for more areas in which to seek compensation. Increased liability awards are a particular challenge at a time of growing passenger numbers and a trend towards larger aircraft. In a drive for efficiency, airlines are flying more passengers, but on fewer flights. According to the Bureau of Transportation Statistics, the average number of US passengers per flight jumped from 69 to 91 between 2007 and 2017. The new generation of aircraft carries hundreds of passengers at one time — the Boeing Dreamliner can carry 250 to 300 passengers while an Airbus A380 has the capacity for around 600. With liability awards per passenger in the millions, a major aviation loss could easily result in a liability loss of $1 billion. |

Foreign object damage claims and bird strikes soar

Damage from foreign objects like bird strikes is nothing new in aviation, but we are seeing a high level of foreign object damage claims with more than 14,600 reported collisions with wildlife in 2018, according to Federal Aviation Administration (FAA) data. That equates to an average of 40 bird strikes per day in the U.S. According to Allianz analysis of more than 50,000 aviation insurance claims, bird strikes are a notable contributor to aviation collision/crash incidents, resulting in excess of €330 million ($364M) of insured damages between July 2013 and the end of 2018 — over 1,000 (1,032) related claims were received by insurers during this period in this data set. The average bird strike claim costs €327, 232 ($361,356), with some claims costing as much as €15 million ($16.6M) and up. Most accidents occur when birds hit windscreens or fly into engines. Estimates of the economic toll of bird strikes have been calculated at as much as $400 million a year in the U.S. to $1.2 billion worldwide, although conclusive numbers are hard to come by. Attempts are being made to further reduce the number of strikes on take-off and landing at airports through bird management and control. Many airports have implemented wildlife management plans and employ wildlife biologists to help safely move encroaching wildlife out of harm's way. Other approaches include utilizing sounds, lights, pyrotechnics, radio-controlled airplanes, decoy animals, lasers, dogs and bird capture, and relocation methods. However, population increases in flocking birds, together with the growth in commercial air traffic, continue to pose challenges. Despite the significant improvements that have been made to the aviation sector's safety record in recent decades — particularly with regards to the number of fatal accidents – the aviation insurance industry continues to see a high volume and growing magnitude of claims, meaning both aviators and insurers cannot afford to rest on their laurels. James Van Meter is the regional head of aviation programs & product development in North America at Allianz Global Corporate & Specialty. Related: |

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