Crashes, collisions take 63% of $15bn aviation insurance claims — Allianz

Cynthia Ezekwe

A recent report from Allianz Commercial, a prominent player in the business insurance market, has revealed that crash and collision incidents constitute 63 percent of all aviation insurance claims, equating to more than half of the total value of claims worth  $15 billion paid within the sector over the course of a five-year period.

According to the recently released report titled “Aviation Risk, Claims and Insurance Outlook”, the aviation sector has emerged as a key contributor to the corporate insurance landscape, accounting for some of the most high-value and high-profile claims on a global scale.

A comprehensive analysis of over 32,000 industry claims spanning from 2019 to 2024 and totaling $15 billion (€14bn) showed that collision or crash incidents accounted for a dominant 63 percent of all aviation insurance claims paid out, followed by faulty workmanship or defective products accounting for 22 percent of claims paid.

The report also highlighted that natural catastrophes and machinery breakdown contributed to four percent and three percent, respectively, of aviation claims payment, while fire accounted for one percent of aviation claims.

Tom Fadden, global head of aviation at Allianz Commercial, observed that the aviation market is currently in a unique and potentially unprecedented state, with the traditional market cycle having been altered by the ripple effects of both the COVID-19 pandemic and global conflicts. In light of these extraordinary events, the aviation insurance landscape has been thrown into a state of flux, as the market struggles to adapt to rapidly shifting risk exposures and unforeseen challenges, creating both opportunities and risks for aviation insurers.

Fadden stated: “The continual growth of the aviation sector will see premiums hit a 20-year high in 2024 of more than $8 billion. We see a growing interest in multinational insurance, and more enquiries for international insurance placements for entire programmes across lines of business, driven by increasing geopolitical and regulatory concerns and a desire from clients for a highly managed insurance structure. Yet dark clouds continue to hover for insurers with well-publicised losses and inflation pressurising bottom lines.’’

The Allianz report highlighted a marked escalation in aircraft repair costs over the past few years, attributable to a confluence of factors such as escalating labour rates, increasing costs of aircraft parts, and the rising spectre of inflation.

According to the report, these shifting dynamics have played a significant role in driving up the overall cost of aircraft repairs, which, in turn, has impacted aviation insurance claims, particularly those pertaining to engine disassembly and repair costs.

Allianz emphasised the mounting shortage of skilled aircraft mechanics, cautioning that this could have far-reaching implications for future aviation insurance claims. It noted that with the dwindling supply of qualified aircraft mechanics potentially leading to a decrease in efficiency and an uptick in repair delays, insurers may well face an increase in claims related to extended aircraft groundings, missed revenue opportunities, and delayed deliveries.

“More less-experienced mechanics on the line could mean they do not have the ability to repair a part, meaning it will need to be replaced with a new one, which typically is more costly.  An obvious concern is that the shortfall ultimately leads to an accident, despite the systems of checks and balances in place in the industry,’’ the report noted.

Addressing the issue of rising aircraft repair costs, Cristina Schoen, global head of aviation claims at Allianz Commercial, remarked that an additional factor to consider is the recent uptick in runway excursions in 2024 compared to the same period in 2023. With a reported 23 excursions occurring worldwide between January and May 2024, root causes include inclement weather and technical problems. Schoen also highlighted a notable rise in ground handling claims at major airports worldwide.

Emphasising its commitment to environmental sustainability, Allianz Commercial has pointed out that the aviation industry is responsible for about two percent of global greenhouse gas emissions and has set the ambitious goal of achieving net zero carbon emissions by 2050. While acknowledging that there is no single, all-encompassing solution to decarbonisation in the aviation sector, Allianz Commercial identified the importance of recognising the progress being made towards cleaner, more sustainable air travel, with a range of promising initiatives and developments already underway.

“Sustainable Aviation Fuel (SAF) continues to attract a lot of attention with mandatory targets starting to be implemented. Improvements on existing technology continue to advance apace, as do innovations. The market for eco-friendly electric vertical takeoff and landing (eVTOL) aircraft, which can transport passengers or cargo, is set to grow significantly in the future – the first insurance coverages for operational uses are likely to be placed this year,’’ the report stated.

In light of the increasing emphasis on environmental, social, and governance (ESG) factors in business decision-making, Allianz has underscored the need for companies to be aware of and adapt to the rapidly evolving regulatory landscape.

In particular, Allianz  highlighted the importance of the EU’s Corporate Sustainability Reporting Directive (CSRD) and similar regulations being implemented globally, which mandate that corporations disclose comprehensive information about their ESG performance and the impact they have on the world around them.

Expanding on the need for companies to adapt to the changing regulatory landscape and the focus on ESG factors, Tom Fadden, the global head of aviation at Allianz Commercial, identified Allianz’s financial strength and resilience as a cornerstone of the company’s long-standing role as a trusted partner to the aviation industry.

Fadden explained that with a century-long track record of providing financial support to aviation customers, Allianz is uniquely positioned to weather the storms of economic uncertainty and shifting regulatory requirements, offering a combination of fiscal sophistication, prudent risk management, and disciplined balance sheet protection.

“As the 110th anniversary of the issuance of our first ever aviation insurance policy approaches, we continue to be laser focused on volatility management, risk selection, detailed sub-segment steering and being a stable and long-term partner to our clients,’’ he added.