Aon: Airline Insurance Sees 3rd Month Of Increase

NU Online News Service, Sept. 25, 1:40 p.m. EDT

Airline insurance placements saw their third straight month of premium increase pointing to an increasingly hardening market in that sector, Aon insurance brokerage said.

The Chicago-based firm's aviation and aerospace division released a report saying that, despite variance in a few placements during the month of August, the overall trend for the past three months continued in the upward direction. Over the last three months average lead hull and liability premiums have increased by more than 20 percent, Aon said.

The increases reflect a "tougher stance that the insurance markets have been taking after what looks like to have been two years with little or no profit," the report said.

The high level of losses so far this year have reinforced the carriers' position, Aon continued.

To date, the 2009 loss figure, excluding minor losses is $1.51 billion compared to $574 million for the same period last year, Aon said.

"Given the high level of losses in 2009 and the plummeting price of insurance during the middle of the decade, it seems only natural that the cost of insurance is rising," the report said. "Very few organizations will be able to avoid this economic reality, no matter how painful it is to the bottom lines that are already wilting."

Aon noted that the final cost of an airline insurance policy may be even higher than what it is reporting because the report is not inclusive of all the layers of coverage. Because of this, the "true market price of airline insurance is rising more quickly than our data suggests."

Capacity remains available, Aon said, and more may begin to move back into the marketplace as prices increase.

In addition to the insurance increases, passenger numbers are down, Aon said, falling by 10 percent so far this year. The world's major carriers are being hit particularly hard by the recession as it affects traveler's pocketbooks.

"The industry is not expected to recover for some time, but a number of airlines are continuing to review their fleets at the same time as reducing capacity by retiring older, less efficient aircraft," Aon pointed out.

The retirement of older aircraft would be a positive for insurers because it would mean newer, potentially safer aircraft are being flown by the airlines.

However, the changes could also reduce airline fleet values, Aon noted, which means underwriters will still be pressured to meet premium targets.

Studies show that the rate of decline in passenger and cargo numbers has slowed, but the airline industry continues to suffer. Aon predicts that "It will be some time before there is enough economic confidence for the airline industry to enter a period of recovery."