News Editor's Comment: What next for the aviation sector?

The latest industry estimates suggest insurance companies are set to shell out more than $2bn (£1.2bn) in 2014 following a string of high‑profile aviation disasters over the course of the year to date.

As the losses incurred following events involving Malaysia Airlines flights MH370 and MH17, Air Algerie flight AH5017 and Trans Asia Airways flight GE222 continue to be digested, debate is already rife as to how subsequent rates will be impacted.

Well-placed market observers have told Post the cost of aviation war risks could rise five-fold in the wake of flight MH17 being blown out of the sky over eastern Ukraine on 17 July. The aforementioned tragedies involving Air Algerie and Trans Asia may trigger a 20% uptick in all-risks policies.

While rate increases are an inevitable consequence of disasters of this nature, it remains to be seen whether equal emphasis will be placed on the structuring of certain aviation polices in light of recent developments.

British Airways and Air France were among the first airlines to alter their flight paths from entering airspace above the troubled Ukrainian borderlands, and many others have now followed suit.

This has coincided with a number of insurance companies considering withdrawing from providing certain types of coverage for aircraft that persist in flying over hotspots in eastern Europe, the Middle East and parts of Africa, where tensions are also running high.

Meanwhile, the death of the 464 passengers and crew members on board the three ill-fated July flights may also lead to some introspection for both the mainstream aviation and wider insurance industries.

Commercial aircraft are not built to withstand surface-to-air missile attacks, but the Air Algerie and Trans Asia crashes (both, at this stage, thought to be a result of adverse weather conditions) come during a period where increased aircraft safety – and the resulting drop in claims activity – was said to be a root cause of significant reductions in aviation premiums over the past five years.

Both the market’s position as a bastion of rock-bottom rates and the assertion that taking to the skies is gaining ground as the safest way to travel will be sorely tested as the dust continues to settle on a traumatic period for the aviation industry.

Callum Brodie
News editor

This article was published in the 24/31 July edition of Post magazine.