Posted by: Tom Chappell | May 10, 2010

Ground Effects on Aviation Insurance

The first four months of 2010 have been difficult for the insurance industry.  We have experienced several catastrophes that could cause us all to pause and question what the effect will be on all sectors of the insurance industry.  We are told that the Deepwater Horizon oil rig could well exceed $1.5 billion.  The residual effect on the fishing industry, the tourism industry, and the gulf coast real estate business and property values is anyone’s guess.  The Chilean earthquake will also take its toll on the insurance industry.  And now, the floods recently endured in the Mississippi and Tennessee valley will add insult to injury.  Property losses in Nashville, Tennessee alone are expected to exceed $1.5 billion, much of which was uninsured.  The end result of the 2010 losses will be billions of dollars in insurance claims.  The claims reserves are unknown at this time.

How can an earthquake in Chile, or an oil spill in the Gulf of Mexico have any effect on the aviation insurance world?  Although seemingly fragmented, the insurance industry is a close community.  Many reinsurers focus on a narrow segment of the industry, others are quite diverse in scope.  Often these broad based reinsurance underwriting companies are the larger companies in the industries.  Catastrophes such as the oil spill in the Gulf can have a major impact on the profitability of these underwriters.  The result is pressure to raise insurance rates and premiums in an attempt to recover the costs of such claims.  Remember, all this happened in the first one third of 2010.  With the hurricane season still ahead on the east coast and the oil spill threatening the gulf, what more is in store for the rest of the year in the U.S.?

Don’t forget the volcano and its effect on European air travel.

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