Empowered Expertise

Aviation and the year ahead

by James Walker, Divisional Head of Aviation and Space on

While vaccines signal hope for the future, the pandemic has permanently impacted the aviation industry and changed the way insurers operate, explains James Walker, TMK’s Head of Aviation.

  • What has been the impact so far of the COVID pandemic on the aviation market?

Aviation as an industry has been devastated by Covid, on both a financial and personal level. Major industry bodies have forecast that the number of airline passengers travelling in 2020 will likely be less than half of what might have been expected, with a corresponding loss of airline operating revenue of up to USD400bn. This impact can be felt across most associated aviation operations, including airports, which are anticipating a loss of circa 60% of passenger traffic and just over USD100bn in revenues for the year.

The number of redundancies that have already been announced make sombre reading, with an estimated 43% reduction in aviation jobs in 2020 (according to IATA), affecting a huge number of people. It will take many years for the industry to recover.

As a business that has worked with the Aviation sector since 1976, we have established many strong, long term relationships with our aviation clients and colleagues in the sector and have felt keenly the impact this has had on them. To them, and to the industry workers who have been so severely affected, we extend our deepest sympathies and best wishes as we continue to provide support to them in their recovery.  

Conversely, the aviation insurance industry has been less significantly affected by Covid. Market income for 2020 is below what would ordinarily have been expected, as it is typically linked to the now much reduced exposure metrics. This has necessitated underwriters to rapidly adjust their approach in several areas and created a significant degree of uncertainty around the market premium base, both in the short and longer terms. Beyond an increase in repossession expenses caused by aircraft being returned to lessors however, COVID 19 has not presented any material losses to the market to date.  We are also not anticipating any kind of systemic liability claims arising.  It is humbling to say that we have been fortunate.

  • Has it altered perception of risk in the class?

The main underlying risks to which aviation insurers are exposed, damage to aircraft and/or bodily injury to passengers and third parties, have not materially changed due to the pandemic.

A consequence of the unfortunate downturn is the sheer volume of aircraft that have been ‘laid up’ during the pandemic. In the highly competitive aviation industry, successful airlines require their aircraft fleets to spend as much time as possible in the air generating revenue. Never has the industry had to contend with so many aircraft being on the ground worldwide at one time. Even finding space to park them is not always straightforward! The combined value of these aircraft at any one relatively compact location can run to many billions of USD. Underwriters have had to find new ways to determine and then to manage our significantly increased and largely unforeseen ground exposures, with the world’s aircraft not operating to their typical scheduled routes. This has required the development of innovative solutions from the insurance market and their partners. This includes for example new ground accumulation software, which exploits actual transponder data from aircraft on the ground and matches it to underwriter’s bespoke portfolios of risk. 

  • What changes to coverage or premium rate has it brought, or do you expect?

Whilst there have been a few minor amendments to aviation policies as insurers’ experience of COVID has developed, including adjustments to cover and limits for certain exposed perils, we don’t anticipate many significant coverage developments to arise from the pandemic. Aviation policies are not materially exposed to the virus and there is little anticipation of any larger, systemic issues arising that would require something more fundamental.

Regarding premium rate, we are certainly seeing more significant changes in approach here. After many years of disappointing trading conditions and weak pricing, aviation insurers had recently found themselves in the early stages of a market that was finally moving towards delivering a level of sustainability around its pricing of risk. Then COVID.

Adjustable rates have continued to increase during the last seven months however, and often significantly, but applying an increased rate against an often more substantially reduced rating metric (number of passengers/departures etc) has not delivered the premium increase that the market needed to be sustainable. Furthermore, the market is likely to be returning substantial parts of its premium income this year as current risks expire and are adjusted downwards.

As the year has progressed, we have seen a significant increase in the application of minimum premiums on insurance policies, driven by a desire to provide a degree of certainty for insurers and an adequate ‘base’ level of market premium, to ensure insurers are commercially able to support the wider aviation industry into the future. This is of course a delicate process given the already monumental financial challenges faced by the aviation industry and the consequential human impact on its employees who have suffered through the uncertainty caused by this pandemic.

  • Has COVID had an impact on the capacity in the class and will it impact appetite for the future?

We have yet to witness any material impacts to capacity in the class from COVID. Our market had already been going through something of a transition in the two years prior to the pandemic, with significant capacity withdrawing or retrenching following many years of inadequate pricing, principally caused by over-capacity.

With the improving market conditions seen in recent times following these changes, it is likely that certain insurers’ appetites will have increased, and that capacity will again start to more materially deploy in the class. Whilst it is too early to determine exactly how or to what degree the impacts of COVID might influence that process, it is certain to have an effect.

  • Has the pandemic changed the way you do business and interact with clients?

The success of our specialised insurance industry relies heavily on the strength of our relationships with our brokers and clients; fostering a depth of understanding of individual risk profiles and insurance requirements. This is particularly true when considering the niche aviation market, given the complexity of our client’s operations, the size of the policy limits that can be deployed on individual risks and the complex regulatory framework that surrounds the wider global aviation industry.


We have responded to the challenges presented by COVID-19 and, have done an exceptional job of meeting our client’s needs both at TMK and across the wider insurance market. This has been helped of course by improvements in technology, making such things as video conferencing ‘simple’. I still consider this is a poor substitute however, when compared to meeting clients face to face, touring their facilities to see their operations directly and having the opportunity for them to explain their business to us first-hand. Getting back to that level of interaction is a priority of mine, as soon as we get on top of the virus.

  • Looking to the future, will the aviation market be permanently changed by COVID 19 in terms of products, coverage demands, or other factors?

Our existence as an insurance market is entirely dependent on us providing protection for our clients and meeting their evolving risk management needs. Vaccines are thankfully now becoming available across the globe, but there is little doubt that COVID 19 will have permanently impacted the aviation industry and, vicariously, will change the way we as insurers operate:

Will we see a fall in the number of higher margin business travellers in the future, following the successful development of office and home-use video conferencing technology?

Will the large numbers of highly trained and previously motivated aviation industry professionals, from mechanics to pilots and cabin crew, that have lost their jobs during the pandemic, enthusiastically return as the industry revives post lockdown?

How will these and other changes affect the risk profile of airlines in the eyes of the insurance market?

We have reason now to be hopeful that the end is in sight, but even with this positive news, the path back to normality will be a long one. The aviation industry will undoubtedly however be at the centre of the global social and economic recovery and the aviation insurance market will do what it can to support this.

We would like to extend our best wishes to all our clients and brokers during this transformational period as we work towards recovery and thank them for their continued support.

For more information about TMK’s Aviation products, visit product page.


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