The true value of aviation insurance
The airline industry has historically prided itself on delivering a highly sophisticated product to passengers...Find out more
AB: Yes. Other jurisdictions in the developed world are also showing signs of a more generous approach to compensation. Insurers vigorously oppose "forum shopping" intended to transfer cases to a US jurisdiction when there are no legitimate grounds for such a move, but even the threat that a case could end up in a US court is often enough to bring about a larger compensation offer in the original jurisdiction. The fact that law firms in many parts of the world are hiring US attorneys as full-time staff members or as consultants to assist them to build cases for transfer to US courts is an indicator of how systematic this strategy has become.
ES: How is the (re)insurance sector tackling these challenges in the midst of an enduring financial crisis, softening rates and other woes facing the aviation industry?
AB: The existence of ample capacity to meet the insurance requirements for all aviation risks has resulted in a very competitive environment. This has driven insurers and reinsurers to develop improved rating models that factor in claims inflation and the potential for cases to be adjudicated in a US jurisdiction.
Often, this will mean that, for some insurers or reinsurers, a risk or a portfolio is found to be underrated at the rates offered in the market. When this is the case, a counter offer may be made. If the insured or cedent is not prepared to accept the counter offer, then the (re)insurer may decline to accept the risk or ceded business. If there is not sufficient capacity available at the rate offered, it may be necessary to carry an increased retention or to agree to a higher rate. As a concrete example of this, following the Air France loss in 2009, some insurers required higher rates or they withheld their capacity. This caused a noticeable increase in rates, albeit some insurers considered the increase insufficient.
