The problem with insurance
By John Boyce, Contributing Editor
September 2002Insurance Providers See a Hard Market, but One that’s Stabilizing
Larry Mattiello, president of Aero Insurance, says the only way the insurance markets are making it is by a "very dramatic increase in premium unlike anything seen in the history of aviation," but he says that there is hope that things will stabilize.
Behan, president of Air-Sure Limited, in Golden, CO, and Tom Coughlin,
president and CEO of Air-Sur, Inc., agree that this "hard"
market should be softening in the next year or two. Ed Underwood,
president of Avsurance, isn’t so sanguine, but is hopeful.
"I have some large and small insurers out there that have differing opinions," Behan says of the length of the current situation, "and re-insurers have a different opinion. I personally think that we have the remainder of this year and probably next year where the market is hard. Beyond that I can’t see it staying hard."
Coughlin, a 25-year insurance veteran, says, "I’ve not seen a prolonged hard market for more than two or three years. And it’s hard to gauge how far we’re into it right now, but a lot of our operators are getting their second round of increases. I honestly think that it’s going to stabilize in 2003.
"The only caveat I would add there is, barring another calamity occurring. If another one happens we could find that we’ve got very few underwriters even willing to come to the table to accept the risk." Coughlin adds that the insurance industry is expecting some $50 billion in claims — $5 or $6 billion in aviation — from the 9/11 attack.
Underwood fears that underwriters not even coming to the table will be a reality even if there isn’t some calamity in the meantime. "I don’t see a softening," he says, "because I see less and less underwriters actively pursuing writing FBOs. Hopefully, the market won’t be up as much next year. But I don’t see anybody new getting into that market. I’ve heard from a lot of underwriters that they don’t want as much commercial business next year. That would include FBOs."
Insurance is a global industry and the underwriters which aviation entities deal with here in the U.S. cushion themselves against loss by buying re-insurance from companies in Europe and elsewhere. This means insurance premiums are not, strictly speaking, governed by the losses in a particular business, a particular industry, or even in a particular country. They are governed to a large extent by global conditions and losses.
escalate to ’scary’ levels while mitigating risk is difficult
It comes as no surprise to anybody in the aviation business — from the smallest line service operation to the largest airline — that insurance costs are escalating to, as one industry insider puts it, scary levels. It also comes as no surprise that the trend will continue as the insurance industry tries to correct a decade-long series of heavy losses, underpricing, and more recently a diminution of revenues from investments.
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