Aviation industry expects double-digit insurance premium hikes after 737 MAX grounding

Experts say market premiums have been creeping up since 2017

A grounded Lion Air Boeing 737 Max 8 in Cenkareng, Indonesia. Bloomberg

The aviation industry is bracing for double-digit insurance premium hikes for the first time in about 15 years, as insurers wrestle with higher costs from aircraft groundings, including the grounding of Boeing’s 737 MAX jets following two fatal crashes, insurance executives said.

Aviation industry premiums have been creeping up since 2017 as companies renew their contracts, in the aftermath of costly plane and helicopter groundings, executives said on the sidelines of a Montreal conference on aviation and products liability.

The grounding of Boeing's 737 MAX has put further pressure on rates, even as underwriters try to tighten insurance contract language governing groundings.

"We have been seeing gradual growth in rates over the last year to two years, but the level of increases has certainly picked up since the MAX losses," said Simon Abbott, Global Aerospace executive, at the Aircraft Builders Council conference. "The single-digit increases of last year have become very definitely double-digit this year."

Global Aerospace, a joint venture of two of the world’s largest reinsurers, Munich Re and Berkshire Hathaway, was the lead insurer on Boeing.

"There is plenty of evidence of double-digit hikes,” said another industry source who was not authorised to speak publicly about the matter.

Airlines' trade group International Air Transport Association declined to comment. According to a July report in Insurance Insider, Global Aerospace was able to secure a 59 per cent rate hike from Indonesian carrier Lion Air, which operated one of the two MAX jets that crashed.

Global Aerospace declined to comment on the report, while Lion Air was not immediately available for comment.

In addition to claims stemming from the crashes, insurers face claims from interruption to airlines' businesses during the grounding, which Boeing expects to end early next quarter.

While insurers would help cover airlines' grounding costs, along with lawsuits from families, Boeing could still be on the hook.

Boeing had a policy totaling over $2 billion including a sub limit of $500 million for grounding, industry sources say. Boeing declined to comment.

Industry executives have said insured losses following the MAX grounding would be the highest for aviation insurers since the September 11, 2001, attacks on the US.

Global insurers incurred a total of $47.1bn in losses from the September 11 attacks, including $5.2bn in aviation liability losses, according to the industry-funded Insurance Information Institute. While the September 11 attacks drove premiums up, rates softened in subsequent years, executives said.

Price increases are not uniform, with smaller and medium-sized aerospace suppliers seeing only modest increases.

Bob Crawford, board president of the Aircraft Builders Council, which provides aviation products liability insurance, and fellow board member David McClain, said they have heard underwriters are proposing to both clarify and tighten contract language on aircraft groundings in the wake of the MAX crashes, although it is not yet clear how.