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Aviation claims more frequent, more severe

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Aviation insurance claims are increasing in both frequency and severity, driven up by more valuable aircraft, higher repair costs and rising liability awards for crash victims, a study of five years of claims in the sector has found.

The greater volume of claims is also a reflection of larger passenger numbers and more congested airports, as well as growing demands on airlines, manufacturers and ground services, the Aviation Risk Report 2020 produced by Allianz and the Embry-Riddle Aeronautical University reveals.

The report identifies a number of insurance claims trends affecting the industry – including the top causes of financial losses – and highlights risk trends and challenges that will affect aviation insurers in future.

Collision/crash is the top cause of aviation insurance claims, driven not just by major aviation disasters but hard landings, bird strikes and incidents on the ground.

Faulty workmanship/maintenance is the second cause, followed by machinery breakdown.

Analysis of more than 50,000 aviation insurance industry claims worth more than €14.8 billion ($23.79 billion) from 2013-2018 shows collision/crash incidents account for 57% of all claims by value, and 27% by number.

There have been 470 runway incidents resulting in claims over five years, causing more than €800 million ($1.29 billion) in damages. The average runway claim is about €1.7 million ($2.73 million).

More and more aircraft are using light carbon materials and significant damage to this is more expensive to repair than traditional metal alloys.

Increasing complexity is also leading to more costly grounding incidents, involving entire fleets, as in the case of the Boeing 787 Dreamliner in 2013, following electrical system problems stemming from lithium-ion batteries, and the two fatal crashes involving the redesigned Boeing 737 Max within five months in 2018 and 2019.

“Such incidents highlight the challenge in finding technical solutions to complex problems, which increases the time it takes to get grounded aircraft back into operation,” Dave Warfel, Regional Head of Aviation, North America at Allianz Global Corporate & Specialty (AGCS), said. “Civil aviation and airline safety authorities have grown increasingly cautious and rightly so. However, this will likely result in more, and longer, groundings of aircraft in future.”

The report highlights a range of future challenges.

Projected demand for about 800,000 new pilots over the next 20 years – double the current workforce – will stretch flight schools.

Incidences of turbulence are predicted to increase in future due to climate change, with the busy North Atlantic flight routes anticipated to see the greatest increase.

The growing number of drones in the skies and cyber risks such as hacker attacks, systems outages and data breaches are also expected to have a significant effect on the aviation loss landscape.