Aerospace Insurance Prices Soften Slightly

Aerospace insurance prices declined last year, but not as significantly as coverage for airlines, according to a report from Aon Limited in London, a unit of Aon Corp. insurance brokerage in Chicago.

In its Aerospace Insurance Market Review of 2007, the brokerage said the sector witnessed an average 6 percent reduction in lead insurance premium, but the drop was not as sharp as for airline insurance, which has fallen 30 percent since 2005.

The reductions were consistent across the manufacturer, service provider and airport sectors that comprise the aerospace insurance market.

The key findings of the review are:

o Average lead premium reduction for 2007 was 6 percent, compared to a 3 percent growth in 2006.

o Asian operations received the best average reduction at 8 percent, and were closely followed by Europe and the Americas with 7 percent and 6 percent reductions, respectively.

o Service providers had the largest reductions in 2007, with lead premium falling by 11 percent on average compared to a 4 percent increase in 2006.

Airport lead premium fell by 8 percent on average in 2007, compared to a 2 percent increase in 2006. The manufacturers sector fell by 3 percent, compared to a 5 percent average growth in 2006.

o The number and value of claims have been limited in the aviation sector generally, although the high level of airline hull losses in 2007 may translate into an increased number of claims on the aerospace market as accident investigators assign responsibility.

Doug Peterson, Aon Aviation & Aerospace Group practice leader, said while overall reductions were modest, pricing differed by sector.

“This suggests that the markets are pricing insurance programs according to their actual level of risk, rather than simply applying an industry average year-on-year price change,” he said.

He said these were signs of a “healthy and functioning market,” but some argue that certain sectors do not receive the same “level of reductions as a result of historical loss perceptions that do not take recent improvements into account.”

A copy of the report is available at www.aon.com.