Risk in Context

Aviation: Taking practical action in the face of COVID-19

Posted by Tim Blakey April 21, 2020

We are in a time of disruption and uncertainty unlike anything that we have previously experienced. We recognise that this has created enormous challenges for clients of our aviation practice whether it be in the nature of cash flow issues, staff issues and/or significant business interruption.

In order to proactively manage the concerns of our aviation industry clients, we are engaging with all senior markets seeking their consideration to provide support to those clients. Whilst we are in the early stages of understanding the ultimate global impact of the COVID-19 pandemic and the effect this will have on individual clients, we are considering the following key points which will be beneficial to help support the industry during this unprecedented time.

(a)   Accurate data – to facilitate discussions with insurers on the impact of Covid-19 we will need to be able to provide accurate re-forecasted data. We therefore recommend clients track the impact of COVID-19 on the renewal data previously supplied. The period of the disruption and when a policy is due for renewal will influence the timing of discussions to consider any potential premium adjustment.

(b)   Timing of the approach – the immediacy of impact of the virus on a client’s business, along with renewal date, will be factors in determining when best to approach insurers. Based upon current COVID-19 reports, we expect both an immediate and a more long-term impact to operational data, resulting in reduced forecasts when compared to the data declared to insurers at last renewal. These factors should be considered before taking this strategy forward with lead insurer and others.

(c)   Leader vs rest of the market – any form of agreement directly related to COVID-19 (sitting outside of the usual policy adjustment features) will need support from all participating insurers. Therefore, negotiations with lead insurer will be key to the overall result. However, if a program is supported by multiple insurers behind the leader, they may not all share the same opinion and may be more cautious about offering any form of return over and above the standard adjustment feature. Stage 1 would be to finalise a position with the leader and Stage 2 would be to build up additional market agreement / momentum.

(d)    Overall market premium – as we are all aware, insurers have been focused on increasing the total premium base for aviation, having reached reportedly unsustainably low levels.  Insurers consider their own costs, such as reinsurance, working cost of capital, employment costs etc. when seeking to understand their profit or loss for each underwriting year. Insurers will have a broad involvement with clients affected by COVID-19 and will be anticipating requests for consideration. Consequently, insurers will be considering the overall impact on global market premium. It is therefore likely insurers will approach any requests in a cautious manner until they more fully understand the potential overall impact on their premium income.

(e)   Premium payments / Instalments – at this time we would encourage all clients to carefully consider the implications of failing to adhere to their agreed premium payment schedule, or renegotiated payment plan. If a client anticipates difficulties in meeting future payments, or would like Marsh to investigate a different instalment plan, please reach out to us.

Rest assured that Marsh will be doing our utmost to provide our support and expert guidance throughout this difficult situation and will keep you up to date with market developments. Should you wish to address specific concerns please do not hesitate to contact the Aviation Team.

Disclaimer: This document and any recommendations, analysis, or advice provided by Marsh (collectively, the ‘Marsh Analysis’) are not intended to be taken as advice regarding any individual situation and should not be relied upon as such. This document contains proprietary, confidential information of Marsh and may not be shared with any third party, including other insurance producers, without Marsh’s prior written consent. Any projections are subject to inherent uncertainty, and the Marsh Analysis could be materially affected if any underlying assumptions, conditions, information, or factors are inaccurate or incomplete or should change. The information contained herein is based on sources we believe reliable, but we make no representation or warranty as to its accuracy. Except as may be set forth in an agreement between you and Marsh, Marsh shall have no obligation to update the Marsh Analysis and shall have no liability to you or any other party with regard to the Marsh Analysis or to any services provided by a third party to you or Marsh. Marsh makes no representation or warranty concerning the application of policy wordings or the financial condition or solvency of insurers or re-insurers. Marsh makes no assurances regarding the availability, cost, or terms of insurance coverage. LCPA No. 20/098.