LONDON underwriters have warned that there is a renewed push to raise airline insurance rates following the worst losses in aviation history. Rising passenger liability losses, are likely to put US and Japanese carriers among the targets for rate rises.
Total airline claims are being put at $2.2 billion for 1994, according to estimates from the Aviation Insurance Offices' Association (AIOA), which represents companies in the leading London insurance market.
A series of expensive aircraft losses, including that by fire of the Air France Airbus A340 at Paris Charles de Gaulle Airport, pushed the total of hull losses and major damage to a record of more than $800 million.
Passenger liabilities were also close to record levels, at around $750 million, led by the costs of the USAir Pittsburgh crash. Although the number of deaths was little above the average, the fact that around half involved US and Japanese citizens pushed up the liability, points out Jeff Weston, outgoing AIOA chairman.
Whether this was a freak result or a real increase in the long-term trend towards higher liabilities, claims will take another two to three years to emerge, he says.
Underwriters are voicing growing concerns, however, that with a steady 10% annual growth in the average cost of hull losses and rising liability claims, insurance losses will continue to hit new records. The AIOA estimates that, if 1994's losses were to be repeated in the year 2000, the total claims could rise to $3 billion. A bad year could push the figure even higher.
The AOIA warns that if the trend continues, there will be pressure to raise rates as losses continue to outstrip premium income. The aviation-insurance market has not made "significant profits" since 1987, adds Weston.
Insurers have already signaled their intention to press for rate rises in the wake of the 1994 result, including an attempt to increase liability cover for US airlines. Whether the pressure is successful will not become apparent until the last quarter of the year when the bulk of the world's airlines renew their insurance.
The scope for rate rises is likely to be restricted, however, by the amount of competition within world insurance markets. The London market, which accounts for around 45% of world aviation insurance and has traditionally taken the lead on the majority of international cover, has come under increasing attack from rivals, especially in continental Europe. Qantas, South African Airways and Aer Lingus, have been among the flag carriers moving their businesses to France, over the past two years. "The main London orders on many renewals are being reduced as other markets compete at lower terms," says Weston.
Source: Flight International
