Insurers position for strong growth in Asia Pacific’s aviation industry

International aviation insurers are positioning themselves for strong growth in APAC, as passenger volumes approach pre-pandemic levels and the loss environment remains extremely benign.

According to the Association of Asia Pacific Airlines (AAPA), 28 million international air passengers were carried by Asian airlines in April. This is a year-on-year increase of 32%, and 87.3% of the pre-pandemic levels that AAPA recorded in 2019.

In June, the International Air Transport Association (IATA) reported that the revenue passenger kilometres— or RPK, an industry metric that records distance travelled by paying customers—grew 126.1% year-on-year between 2019 and 2023 in Asia Pacific.

This far exceeds the average 41.5% year-on-year growth seen across all regions, although APAC also had the biggest shortfall to make up.

“Most airlines are now back to pre-pandemic levels, or even exceeding these levels, in terms of passenger numbers and flight departures. At the same time, we have not yet seen insurance claims return to the levels they were at before Covid-19.

This means that insurers on the market are returning very healthy profits at the moment, at least for hull and liability,” says Adam Sullivan, managing director of APAC aviation for Gallagher.

Sullivan says that this is in marked contrast to the years leading up to Covid-19, when aviation insurers in APAC were struggling to turn a profit.

This resulted in several pulling back from the market and returning to writing regional risk out of London or New York. AIG is perhaps the most significant insurer to have done this in recent years.

“This means that insurers on the market are returning very healthy profits at the moment, at least for hull and liability.”

Adam Sullivan

Managing Director of APAC Aviation at Gallagher

Regional opportunities

Sensing an opportunity, Chubb launched a Singapore aviation hub in June last year.

“The market has witnessed several aviation insurance companies exiting Asia in the last five years. This has prompted some of the business to return to London,” says Simon Abbott, Chubb’s Head of Aviation.

“However, our client-centric approach has led us to establish new operations in Singapore and Australia/New Zealand, demonstrating our commitment to serving the region and meeting the growing demand for aviation insurance solutions.”

Abbott admits that “filling the void left by other firms exiting” was a factor in setting up the hub, but he says that the insurer’s “primary focus” is positioning itself to best serve its clients.

“We’re dedicated to providing comprehensive insurance coverage and ensuring claims satisfaction in this dynamic industry,” says Abbott.

“The market has witnessed several aviation insurance companies exiting Asia in the last five years. This has prompted some of the business to return to London”

Simon Abbott

Head of Aviation at Chubb

The verdict is out about whether Chubb’s latest push into the segment represents the start of a wider trend of aviation insurers returning to Asian shores.

It has been more than 12 months since Chubb announced that it was setting up a regional aviation hub in Singapore, and so far no other major insurers have followed suit. Mark Kenway, Regional Director for Aviation at loss adjuster Sedgwick says that it is still “too early to tell” whether this will become a trend.

One consideration for insurers is the relatively high operating costs associated with having a dedicated APAC hub. This may cause some to wait and see whether growth in the sector is as significant as many expect before committing resources to the region.

“To address [high operating costs], we strategically opened Aviation offices in Toronto and Paris, utilising local Chubb assets to optimise operating costs,” says Abbott.

Sullivan says that there are some clear advantages to having a regional operation in Asia, as long as insurers can optimise their operational costs.

“I am a strong advocate for insurers to have a local representation. I just think it results in better products for the end users,” he says. “It is far easier for underwriters to get to know their clients and the risks in the region when they are based locally.”

Attritional losses

One reason why few insurers have so far followed Chubb’s lead may be that, although insurance claims remain low, attritional losses seem to be ticking upwards.

“Contrary to the general trend in improved air safety, attritional losses continue, with the settlements for such losses increasing, driven by the high cost of repairing modern technology aircraft, engines, and components,” says Kenway from Sedgwick.

Until recently, Sedgwick did not have an aviation adjusting team, but in May decided to establish one across its global operations. Kenway says that this was “to meet the evolving needs of the aviation market”.

“Contrary to the general trend in improved air safety, attritional losses continue, with the settlements for such losses increasing.”

Mark Kenway

Regional Director for Aviation at Sedgwick

One thing that could make the situation even worse is the ongoing legal disputes between insurers and aircraft leasing companies over aeroplanes that are still stranded in Ukraine.

Most aviation insurers will duck any questions pertaining to these ongoing court cases, since many of them are involved in one way or another. However, Kenway says that, depending on the outcome, these “could give rise to unprecedented levels of settlements”.

Abbot says that other factors that could lead to a rise in attritional losses include the general increase in liability awards, claims arising in the aerospace sector on manufacturer policies, and the reported increasing cost of the aviation markets’ own reinsurance programs.

While such headwinds are global rather than regional, it is inevitable they will factor into any strategic decision to push into APAC.

Supply chain bottlenecks

A year ago, Sullivan was fairly bullish about the number of startup airlines that would be appearing across Asia in 2024. Now it looks as if many of them have hit a bottleneck: they can’t get hold of the aircraft that they need to service the rising level of demand.

“A lot of airlines are still trying to start, but they’re all facing the same challenge, which is a big lack of aircraft,” says Sullivan.

In particular, Boeing, one of the world’s two largest manufacturers of passenger aircraft, continues to face problems.

Two fatal crashes of Boeing aeroplanes in 2018 and 2019 (and subsequent investigations) significantly disrupted production at the company. Things have not yet recovered and there are still production problems at the company. According to a recent report from Reuters, Boeing has delayed a production ramp-up pending further investigations by the Federal Aviation Administration.

“Airlines that would have had order book deliveries over the last few years haven’t been able to get the aircraft, which means existing airlines are hanging on to their used aircraft for longer,” says Sullivan “This has impacted the secondary aircraft market, which is the pond in which most start-up airlines would be fishing.”

Sullivan says that these supply chain issues are holding back growth in the industry and limiting opportunities for insurers.

“This will continue until the supply chain issues flush through the system, which will probably last into next year, maybe a little big longer,” says Sullivan.

Once things do correct, however, aviation in Asia could be poised for even more growth — and that is what many of the world’s largest insurers are watching.