Recent Developments in the Aviation Insurance Industry

Abstract

The aviation industry has been hard hit in recent years. While there are numerous factors that have contributed to the industry's dilemma, rising and volatile insurance premiums - particularly after the events of 9/11 - have posed a particular problem for many airline managers. Despite a general trend for accident rates involving commercial passenger airplanes to decrease as aviation technology has advanced over the years and airplanes have become safer, the aviation insurance market has been far from stable. This paper provides an overview of how the aviation insurance industry works and how it has changed in recent years. We take a look at how the risk is spread between insurers, how insurers treat deliberate acts of violence and, lastly, how insurers price the risk. Our paper shows that the aviation insurance market has undergone considerable changes in recent years and that it has adjusted to the post 9/11 aviation insurance realities being reasonably ready to handle events of an even more catastrophic magnitude.

Keywords: Aviation Disasters, Aviation Insurance, Reinsurance

JEL Classification: D81, G22, L52, L93