Charting a Course Through the Challenges of Aviation Insurance | Insurance business America
Leader points to rising claims costs and market pressures in 2024
Insurance News
By Mia Wallace
Dealing with some of the most high-profile and complex aviation claims in the market – from complex repairs to complete loss of aircraft – Charles Taylor Adjusting’s global team of aviation experts and contractors have an overview of the challenges facing the aviation industry today.
Hugh Thacker (pictured), the company’s global director of aviation, assessed the pressures facing insurers in the first half of 2024, identifying the continued rise in claims costs as one of the biggest issues facing the market. The costs associated with repairing an aircraft have increased significantly, he said, and there are several underlying reasons for the jump in costs before and after the pandemic.
“First, although the pandemic is now behind us, its knock-on effects are still impacting the aviation industry,” he said. “Around two-thirds of the global commercial aircraft fleet was grounded due to COVID-19 – around 5,000 aircraft in Europe alone. Aircraft were parked close together and this accumulation led to an increase in losses due to weather-related incidents such as severe hail, wind and/or flooding.
“Secondly, many aircraft were withdrawn from service during this period and we therefore saw manufacturers reduce or even stop producing spare parts for these types of aircraft. As lockdowns were lifted and aircraft returned to service, the lack of available parts drove up the cost of available parts. It also takes longer to obtain the parts needed, which increases repair times and claims costs.”
Geopolitical tensions and labor shortages – what shapes the market?
Additionally, Thacker noted that geopolitical tensions caused by Russia’s invasion of Ukraine have had a significant impact on the availability of raw materials for the aviation industry. The war has also led to a sustained increase in energy prices and inflation, affecting the entire industry, including the aviation sector.
Finally, there is a global shortage of engineers in the international aviation market, which has increased the demand for qualified experts and the associated labor costs by around 30% in the last five years. With growing demand from a growing global fleet, the aviation market must implement systemic change to develop its pipeline of future engineering talent.
“Beyond these market challenges, there have also been a number of well-publicized issues with some aircraft and engine manufacturers that have resulted in numerous groundings,” he said. “Attempts to resolve these issues have resulted in competing demands from manufacturers, operators and repair shops for parts and technicians. This has fueled claims cost inflation.”
Thacker stressed that the nature of the challenges will likely continue to be a concern in the medium to long term – and their impact will certainly be felt in the second half of 2024. In fact, he said, it is likely that in the short term the market will see further cost increases due to continued reductions in available raw materials and parts, as well as continued and increasing demand for skilled engineers.
The role of technology and new data points in developing aviation solutions
Given the many challenges facing the aviation industry today, it’s no wonder that key players across the insurance market are taking a solutions-focused approach. When it comes to aviation claims, Thacker noted that the use of technology and data has played a large role in increasing the speed and accuracy of claims processing.
“For example,” he said, “in the context of baggage claims, we use a market-leading automated claims processing system that uses certain parameters to review the claims data submitted, compare it to the policy and, where appropriate, approve the claims.” Processing in seconds. Approximately a quarter of baggage claims are processed without human intervention. This helps to keep costs under control and to resolve claims quickly.”
Scanning technology has also proven very useful in creating detailed three-dimensional images of damage to aircraft, he said. These images can be sent to the OEM, who can analyze the damage and approve repair options instead of scrapping components. This approach can enable aircraft to return to service more quickly and contain damage costs.
“We can also use scans to compare components to standard digital twins,” he said. “This allows damage or anomalies to be identified and allows manufacturers or repairers to make accurate decisions about whether or not to grant permission to fly.
“When investigating the cause of damage, the increasing technology integrated into modern aircraft means we have access to many systems that record data and provide insight into flight parameters before, during and after an event. This helps us to pinpoint the causes more quickly and accurately and to detail any necessary repairs.”
The role of technology in damage validation
Thacker explained that technology also plays a big role in validating claims. For example, if the team is dealing with a drone loss, they can analyze the stored flight data and rewrite it through other systems such as Google Earth, he said. This allows them to confirm that the flight was carried out correctly, legally and within the terms of the underlying insurance cover.
He added that drones are also playing an increasingly important role in accident investigation, making it possible to inspect remote accident sites and visit those that cannot be visited in person due to circumstances such as contamination.
While the underwriting community is best placed to comment on the impact of these new data points on premiums, it is clear that technology is something that has and will continue to have a “transformative impact” on the market, he said. Artificial intelligence (AI) is a hot topic right now and his team is aware that numerous organizations are looking for ways to integrate AI into their placement models.
“Whether AI is something we want to embrace or something we should be wary of is a whole discussion in itself,” he said. “But we must be clear that AI technology is already part of our everyday lives and is playing an increasingly larger role in the aviation insurance market.”
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2024-06-20 18:51:33
www.insurancebusinessmag.com
