The aviation industry is bracing for double-digit insurance premium hikes for the first time in about 15 years, as insurers wrestle with higher costs from aircraft groundings, including the grounding of Boeing Co.’s 737 MAX jets following two fatal crashes, insurance executives said this week.
Aviation industry premiums have been creeping up since 2017 as companies renew their contracts, in the aftermath of costly plane and helicopter groundings, executives said on the sidelines of a Montreal conference on aviation and products liability.
The grounding of Boeing’s 737 MAX has put further pressure on rates, even as underwriters try to tighten insurance contract language governing groundings.
“We have been seeing gradual growth in rates over the last year to two years, but the level of increases has certainly picked up since the MAX losses,” Global Aerospace executive Simon Abbott told Reuters at the Aircraft Builders Council conference. “The single-digit increases of last year have become very definitely double-digit this year.”
Global Aerospace, a joint venture of two of the world’s largest reinsurers, Munich Re and Berkshire Hathaway, was the lead insurer on Boeing.
“There is plenty of evidence of double-digit hikes,” said another industry source who was not authorized to speak publicly about the matter.
It is not clear whether companies like airlines are passing on the costs of higher premiums to passengers. Airlines’ trade group International Air Transport Association (IATA) declined to comment.
According to a July report in Insurance Insider, Global Aerospace was able to secure a 59% rate hike from Indonesian carrier Lion Air, which operated one of the two MAX jets that crashed. The crashes led to the jet’s March grounding over an anti-stall system.
Global Aerospace declined to comment on the report, while Lion Air was not immediately available for comment.
In addition to claims stemming from the crashes, insurers face claims from interruption to airlines’ businesses during the grounding, which Boeing expects to end early next quarter.
While insurers would help cover airlines’ grounding costs, along with lawsuits from families, Boeing could still be on the hook.
Boeing had a policy totaling over $2 billion including a sub limit of $500 million for grounding, industry sources say. Boeing declined comment.
Industry executives have said insured losses following the MAX grounding would be the highest for aviation insurers since the Sept. 11, 2001, attacks on the United States.
Global insurers incurred a total of $47.1 billion in losses from the Sept. 11 attacks, including $5.2 billion in aviation liability losses, according to the industry-funded Insurance Information Institute. While the Sept. 11 attacks drove premiums up, rates softened in subsequent years, executives said.
Price increases are not uniform, with smaller and medium-sized aerospace suppliers seeing only modest increases.
Bob Crawford, board president of the Aircraft Builders Council, which provides aviation products liability insurance, and fellow board member David McClain, said they have heard underwriters are proposing to both clarify and tighten contract language on aircraft groundings in the wake of the MAX crashes, although it is not yet clear how.
“The biggest key on grounding tends to be what triggers the coverage,” McClain said. “But it leaves a lot of gray area for companies who say ground their own aircraft for safety problems that arise.”
(Reporting by Allison Lampert in Montreal and Suzanne Barlyn in New York; additional reporting by Carolyn Cohn in London, Noor Zainab Hussain in Bangaluru and Stanley Widianto in Jakarta; editing by Leslie Adler)
Photograph: Boeing 737 MAX airplanes are seen parked on Boeing property near Boeing Field on Aug. 13, 2019 in Seattle, Wash. (Photo by David Ryder/Getty Images)
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