After the longest soft market period in living memory, the airline insurance market is beginning to harden, according to Aon's Airline Insurance Market Indicators, Autumn 2008. Aon reports that the insurance market is hardening for the first time in five years with a five percent increase in lead hull and liability premium between January and July 2008. Underwriters have been taking a tough stance to renewals so far this year, a position that will continue for the rest of the year and probably into 2009, said the company.
The hardening is being driven by the loss that underwriters suffered in 2007 as a result of the relatively high level of incidents coupled with the soft market conditions. Lead hull and liability premium prices fell on average by 11 percent in 2007 and 17 percent in 2006, so underwriters are increasing prices in 2008 to recoup their losses.
Aon said that activity during the first seven months saw only 30 percent of renewals experiencing a reduction, compared to over 70 percent during the same period last year. The company noted the vertical price gap between lead and following markets continues to close.
The report’s key findings are:
• Between January and July 2008, only 34 percent of airline renewals received reductions in their lead hull and liability premium. During the same period last year, 72 percent of renewals received reductions.
• Total lead hull and liability premium for the year is expected to be between $1.49 billion and $1.6 billion. This compares to $1.51 billion in 2007.
• Despite the hardening insurance markets, loss rates in the industry are better than average, although a single major loss could change this position.

“As we suggested at the beginning of the year, the airline insurance market has become a much tougher place for airlines in 2008,” observed Doug Peterson, Aon Aviation & Aerospace Practice Leader. “The challenge for the markets is that they are hardening at a point when the aviation industry as a whole faces a number of difficult economic challenges such as high fuel prices and wavering consumer confidence. We expect the final quarter of 2008 to present some interesting dynamics.”