The aviation industry is bracing for double-digit insurance premium hikes for the first time in about 15 years, as insurers wrestle with higher costs from aircraft groundings, including the grounding of Boeing Co’s 737 MAX jets, insurance executives said.
Aviation industry premiums have been creeping up since 2017 as companies renew their contracts, in the aftermath of the costly plane and helicopter groundings, executives said on the sidelines of a Montreal conference on aviation and products liability.
The grounding of Boeing’s 737 MAX has put further pressure on rates, even as underwriters try to tighten insurance contract language governing groundings.
“We have been seeing gradual growth in rates over the last year to two years, but the level of increases has certainly picked up since the MAX losses,” Global Aerospace executive Simon Abbott told Reuters at the Aircraft Builders Council conference. “The single-digit increases of last year have become very definitely double-digit this year.”
Global Aerospace, a joint venture of two of the world’s largest reinsurers, Munich Re and Berkshire Hathaway, was the lead insurer on Boeing. “There is plenty of evidence of double-digit hikes,” said another industry source who was not authorized to speak publicly about the matter.
It is not clear whether companies like airlines are passing on the costs of higher premiums to passengers. Airlines’ trade group International Air Transport Association (IATA) declined to comment.
According to a July report in Insurance Insider, Global Aerospace was able to secure a 59 per cent rate hike from Indonesian carrier Lion Air, which operated one of the two MAX jets that crashed. The crashes led to the jet’s March grounding over an anti-stall system.
Global Aerospace declined to comment on the report, while Lion Air was not immediately available for comment.
In addition to claims stemming from the crashes, insurers face claims from interruption to airlines’ businesses during the grounding, which Boeing expects to end early next quarter.