What to Expect from the Tightening Aviation Insurance Market
Rates are rising in the aviation insurance market. The upward trend is the result of multiple factors, but the issues surrounding the Boeing 737 MAX can be expected to make the situation worse. Aviation customers should brace for a hardening insurance market.
The Boeing 737 MAX
According to Boeing’s website, the Boeing 737 MAX is “the fastest-selling airplane in Boeing history with about 5,000 orders from more than 100 customers worldwide.” The airlines that are listed as customers include Southwest Airlines, United Airlines, Ryanair, American Airlines and many, many others. The 737 MAX received FAA certification in 2017.
On October 29, 2018, a 737 MAX flown by Indonesian airline Lion Air crashed. All 189 people on board died. According to Bloomberg, the plane experienced problems the day prior while being operated by a different crew. On that day, an off-duty pilot succeeded in helping the crew disable a malfunctioning flight-control system.
Then, on March 10, 2019, another 737 MAX crashed. This one was being flown by Ethiopian Airlines. All 157 people on board died. The two crashes, occurring only months apart, led to questions about the safety of the aircraft.
On March 13, the FAA released a statement ordering the temporary grounding on the 737 MAX, noting “some similarities between the ET302 and JT610 accidents that warrant further investigation of the possibility of a shared cause for the two incidents that needs to be better understood and addressed.” Early reports pointed to problems with the MCAS software and anti-stalling system.
The Hardening Market
These crashes come at a time when aviation insurance rates are already starting to increase.
The aviation insurance industry has enjoyed relatively low rates for the last decade or so. This is starting to change. As an article in Flying explains, rising rates may be partially caused by an increase in catastrophic natural disasters in 2017, which has had a significant impact on the global reinsurance market.
The aviation insurance market shows signs of hardening, which can bring rising rates and stricter underwriting. The Boeing crashes and subsequent grounding could easily exacerbate this situation.
Revisiting Certification and Training Requirements
Months after the second crash, the 737 MAX grounding continues. On June 26, another FAA announcement stated, “The FAA is following a thorough process, not a prescribed timeline, for returning the Boeing 737 MAX to passenger service.
The FAA will lift the aircraft’s prohibition order when we deem it is safe to do so. We continue to evaluate Boeing’s software modification to the MCAS and we are still developing necessary training requirements.”
But Boeing’s problems may not be limited to the 737 MAX. The Department of Justice has expanded its investigation to include the 787 Dreamliner, another Boeing aircraft. Boeing issued a statement to CBC News, admitting that records for a 787 were falsified. The aircraft in question, which was sold to Air Canada, experienced a fuel leak.
Captain Chesley “Sully” Sullenberger, who became famous after safely landing a US Airways flight on the Hudson River in 2009, addressed a congressional panel regarding the 737 MAX. According to Reuters, he urged more simulator training for pilots and stated that the original version of the aircraft’s MCAS software should never have been approved. “Our current system of aircraft design and certification has failed us,” he said.
The two crashes represent major losses. According to the Insurance Journal, Europe’s biggest insurers could pay as much as $450 million for the two Boeing 737 MAX crashes, and final payout for the claims could take years.
Aviation insurance customers have enjoyed low rates for a long time now, but that may change soon. Take steps now to shore up your safety and loss prevention practices to ensure that your organization is an attractive underwriting risk when the market tightens.
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