I’ll admit it. I was among those predicting serious insurance rate increases for airlines following the terrible and very public disasters in the skies this past year. But here we are in Q4, the crucial season for airline insurance renewals, and mostly what we’re seeing are single-digit increase.
Why? Why have we been surprised yet again by this marketplace that has surprised us year on year for so long? Because the fundamentals remain unchanged.
The losses this year were apparently from non-operational causes, meaning that the steady improvement in safety record, a key marketplace driver, has continued.
More importantly, capacity still flows into the sector. The airline sector remains appealing to carriers looking to diversify their portfolios. Insurance itself continues to draw capital in search of returns that are difficult to come by in other investments.
So will it ever change? Will markets ever be able to achieve the increases they’ve been seeking? There is no reason to believe that the safety record will decline, as the effectiveness of current protocols likely guarantees their continuing. But the capacity issue can change. A global economic recover y could heat up the economy to the point where investment returns beyond the predictable and fairly modest returns the insurance sector consistently provides would pull capital away. Then, the market might really harden.
Ironically, those of us watching the steady rise of global aviation across the developing world can easily imagine that the airline industry, as a key cog in the global economic wheel, would help get such an economic recovery moving.
Unless of course, we’re surprised again.
If you’d like to hear more, and watch some new jet aircraft clips, see my WillisTV video.