The hard aviation insurance market should once again soften in the next year, according to Consilium’s Aviation Account Director Scott Smith.
Smith was speaking on the latest edition of video interview series Consilium Explores, where he explained to Marketing Director Matt Field the history of aviation market hardening in the last few years, and why he believes a reversal in rates is not far off.
“I don’t think a hard market can be maintained,” he said, “purely because someone will look at it and go, ‘well I haven’t made losses for the last five years, I haven’t been in aviation, now let me get in it, and let me undercut by a small amount. You just need three people undercutting by a small amount to erode it.”
The market hardening was brought about after a sustained period of falling premium prices, caused primarily by over-capacity in the market.
Six or seven years ago, the market was flooded with capacity, he said, with many incentives for insurance companies to get involved with more than just one line of business.
“In everything with an over-capacity the rates drop to such a degree that the rates were not realistic to the risk, and it was a matter of time, maybe three years ago, that the bottom fell out of it,” he added.
With this, a lot of underwriters left the market and capacity levels shrank. Smith explained how in the last three years this has led to rate hikes of up to 300% in some places.
Even now there is still limited capacity in the market, he explained, however, among underwriters operating in the class, he said there is now much better actuarial assessment involved, and generally greater understanding of aviation risk.
“Now there is a lot more red tape and understanding of the risk, which is good, because it allows us to rate risks correctly,” he said. “The rates are higher than what the clients would like, and it’s a hard market, which will change, as it always does.”
He expects rates to start to stabilise, before competition returns to the market, and prices begin falling.
“And of course, the more information we give underwriters, the more competitive we can get the rate, so that’s what we’re working on as well at the moment,” he added.
Smith’s aviation insurance career stretches over 25 years, placing all kinds of aviation policies, and even learning to fly.
To hear more from his interview, where he went on to discuss the impact COVID-19 has had on the market, the developments in automated underwriting in insurance, and emerging markets in aviation insurance, watch the full video below.