At the recent NBAA convention we had the great pleasure of meeting with most of our underwriters, there is no doubt the industry is witnessing the beginning of a soft market cycle and the shift has energized the industry.
For our clients and the aviation industry as a whole this is a positive development in the face of increasing costs in most aspects of the industry. While insurance remains a small component of aircraft operating costs, the future savings in insurance costs will help improve tight industry margins.
The last soft market lasted a decade, an anomaly that stands in contrast to the usual market cycle period of 2-4 years. This new soft market cycle is not likely to last as long nor reduce rates as deeply as the last one. This is due to a few macro factors: the new insurers that triggered the last soft market cycle were large corporations that were able to provide significant added market capacity, including the availability of high liability limits. Another factor was the 2008 financial crisis, which occurred in the middle of the soft market cycle and delayed any hardening of rates due to lower market demand for the years following the crisis.
There are 3 reasons this soft market cycle will be milder than the last one:
- The trigger for this soft market cycle, just like all of them in the past, is the arrival of new insurers – thereby increasing capacity and competition as they seek to put premium on the books. Insurance is an industry of slow entry, due to the highly regulated nature of the business at the State level. So these insurers have been investing in their new ventures for months and years, they are incentivized to put premiums on the books. All of the new insurers are addressing smaller General Aviation markets, and none of them are offering high limit capacity at this time.
- The challenge for all insurers remains the unpredictable nature of aviation accidents, and now they have to deal with record high maintenance costs of aircraft. Therefore underwriting caution must remain paramount for profitable insurer returns, but pressure to put business on the books will be the main challenge. It’s a fine line that insurers will attempt to walk over the next few years.
- The verdict on the War coverage being tested to cover the Russian leased airliners will be the catalyst to either speed up the softening, or stop it in its tracks. Our understanding is that the $10B insurer payout is pending a trial decision on whether the aircraft are covered under the War coverage for Confiscation by Government. Our understanding is that Russian officials have stated they intended to pay the lease payments but were blocked by international sanctions. Possibly making the loss of the aircraft not an intentional confiscation by the Russian government, therefore not triggering cover.
Our commitment to clients is to chase down the rate declines to make sure our insureds continue to get the most competitive rates in the marketplace.
We founded and grew True-Course during the last soft market period, and we thrived by focusing on client service experience and negotiating the best possible rates with our insurance company partners. The optimized client experience results in a healthy referral pipeline, helping our continual business growth.
For any aviation insurance needs, please contact us at info@true-course.com or call our office at 805.727.4510.