A new report for aviation insurer Allianz Global Corporate & Specialty SE (AGCS) finds that while the skies are safer, there are a number of emerging risks that could impact carriers and insurers.
Until this year's unprecedented aviation disasters, the industry's safety record had improved to fewer than two passenger deaths for every 100 million passengers. Over the last 60 years, the industry has seen a steady decline in accidents as technology and training have improved. By today's estimates, there is a greater chance of dying while riding a bicycle (1 in 340,000) than dying aboard an airplane in the U.S. (1 in 29 million). Even the odds of being killed by lightning are higher – 1 in 10.5 million.
The study says that much of the improvement in airline accident rates is due to advances in the reliability of jet engines, with manufacturers almost eliminating the chance of engine failure. The greatest risk still comes from the human factors that can affect safety. These include: pilot fatigue, pilot training, crew resource management and other factors. Approximately 70% of commercial fatal accidents are still due in large part to human error, despite many technological developments. Crew fatigue contributes to about 15%-20% of the accidents, and a number of initiatives will continue to improve safety efforts.
While the majority of large aviation insurance claims, those totaling more than $1.36 million, are the result of plane crashes (23%), another 18% of claims are related to ground handling, and 16% can be attributed to mechanical failure. Ramp accidents cost airlines approximately $10 billion a year and poor communication seems to be at the root of most incidents.
A ten-year analysis of crashes from 2003-2012 found that 57% of accidents occur during descent and landing. Twenty-four percent of accidents occurred during takeoff and climbing to the proper altitude, and only 9% occurred while cruising.
Emerging risks
While the safety numbers are generally trending well for the airline industry, there are a number of emerging risks that could be a concern for aviation insurers. The greatest risk (35%) involves business interruption and supply chain risks such as damage to machinery. Other major risks include market stagnation and increased competition, legislative and regulatory changes, and a growing pilot shortage.
Pilot shortages. The increased demand for air travel means airlines have to find hundreds of thousands of new pilots in the coming years. CTC Aviation, a major trainer in the industry, estimates that the increase in airline fleets will require hiring more than 235,000 pilots over the next seven years. A Boeing report estimates that 498,000 will be needed over the next 20 years. With training running into six figures, the cost to airlines will be substantial.
Wild weather. Another emerging risk involves the weather, or increased turbulence to be more specific. Climate changes will impact the North Atlantic flight corridor and travelers can expect to encounter more turbulence according to scientists. They also forecast that transatlantic flights will encounter turbulence of greater frequency and intensity if carbon dioxide emissions continue to increase. The report says flights across the Atlantic could see significant turbulence which could increase between 40 and 170%. Severe turbulence can cause structural damage to planes and already costs an estimated $150 million per year.
Lithium-ion batteries. The use of lithium-ion batteries continues to be an issue for the Boeing 787 Dreamliner. Incidents where the batteries have burned, causing electrical problems and major fires on planes still have not been resolved. The batteries are susceptible to cold temperatures and can deteriorate, resulting in a short circuit. But the threat from the batteries doesn't stop there. As more and more passengers use them in their cell phones, computers, cameras and other electronics, authorities say that one small, poorly made battery is enough to explode and start a fire on a plane.
Unmanned Aerial Vehicles. Known as drones, unmanned aerial vehicles (UAVs) are becoming far more common as the military and civilians increase the number in use. Collisions, third-party damage or injuries are the primary risks, but insurers have little information to go on when it comes to underwriting the risks. A white paper that investigated incidents over a 10-year period involving unmanned military aircraft accidents found that the number of Class A mishaps (those resulting in "death, permanent total disability or damage of at least $1 million") rose from 21% in 2004 to 50% in 2011. Pilot/human error and hardware failures were the primary reasons for the mishaps. With the FAA planning to incorporate UAVs into U.S. airspace in 2015, the number of incidents could increase as more civilians begin using them.
Wildlife. Birds and planes don't mix well. Neither do lions and cattle on runways. Wildlife in all its various forms continues to be a challenge for airlines. Bird strikes cause an estimated $400 million in damage annually in the U.S. and $1.2 billion worldwide. Airports are using sounds, lights, dogs and decoys to discourage bird populations, and even capture and relocation to move them to safer nesting sites. In Latin American countries, cows and zebras have caused damage to planes on runways as they take off and land. Seems they haven't learned to yield the right of way…
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