Impact of the Coronavirus on aviation insurance

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The health crisis has left insurers in an unprecedented situation. The latter must, in the coming months, take into consideration new risks with planes grounded and with increasing freight operations.

Aircrafts grounded and airports overstretched

Covid-19 appeared when airport aircraft parking lots were already overwhelmed by the immobilization of hundreds of Boeing 737 MAX aircrafts due to a technical defect.

The Coronavirus pandemic has actually compounded an already worrying situation. The financial burden of storing aircraft has become a burden for airlines and airports. More than 8 000 planes, or a third of the world’s fleet with an insured value of 164 billion USD, are grounded.

Insurers who cover both aircraft on the ground and in flight have to come to grips with a high cumulative risk. This cumulative exposure in one location is a source of concern for insurers who must take into consideration the impact of an unforeseen event, such as a natural disaster, explosion, fire, attack, risk of war, …

Increase in freight operations

During the pandemic, cargo operations, particularly those pertaining to medical and humanitarian supplies, have increased. The companies found themselves compelled to reconfigure the planes to meet this unexpected demand.

Insurers must ensure compliance with safety and navigation requirements for all types and uses of aircraft. Air carriers who do not comply with these provisions may end up with invalidated insurance contracts.

Any modification in the use of the aircrafts must be notified to insurers so that they can reassess their commitments.

Foreseeable impact of Covid-19 by the end of 2020

  • Global passenger traffic: decline between 35 and 65% in the overall number of passengers for both domestic and international flights.
  • Airports: 50% decline in passenger traffic with an estimated loss of 57% of airport revenues in 2020, or more than 97 billion USD.
  • Airliners: transport volume decrease (RPK) by 48% in 2020 in comparison with 2019.
  • Tourism: decrease in tourism revenues worldwide, with future-lost earnings likely to reach 910 to 1 170 billion USD in 2020 compared to 1 500 billion USD in revenues in 2019.
  • Trade: 13 to 32% decline in the volume of global merchandise trade.
  • World economy: forecast contraction of 4% of world GDP, a higher decline than that reported during the 2008 financial crisis.

Culled from Atlas Magazine