Glen Brighton is an executive director and Head of Aerospace Risk Management Services at Willis Towers Watson, a multinational advisory, broking and solutions company. A stalwart in the aviation insurance industry, Glen has worked with over 200 different airlines and operators on over 10,000 aircraft, ranging from Airbus A380s to corporate jets. In light of the recent hurdles faced by the insurance industry and its customers, Glen has agreed to sit down and answer some questions.
With the risks presenting themselves in the light of the unrest in the Strait of Hormuz, how is the insurance industry reacting?
I think the insurance industry has learnt from past mistakes, especially following Russia’s invasion of Ukraine.
It’s a delicate balancing act for the insurers; they need to weigh up the risk of losing long-term relationships against the risk of losing aircraft. Most insurers at the moment seem to price the risk of the former over the risk of the latter.
They seem to be playing the long game; many of their customers that are affected are huge airlines with good credit, and, in normal times, insurance claims from them are rare. They are the airlines that will remember who stood by them.
That is why communication matters so much. An insurer is more likely to remain constructive where it receives timely information on schedules, diversions, parking arrangements and security measures, rather than learning about a changed operation after the aircraft has already moved.
Now, this could change radically if an aircraft gets hit whilst at one of the Gulf airports, which would likely result in a flood of cancellation notices.
Have you seen insurers actively cancelling cover?
Insurers seem to be reacting sensibly. I only know of a few notices of cancellation and I believe that these may have been opportunistic attempts to change the commercial agreement on cover.
For others, it’s likely that they’ve decided not to take the risk as flights to the Gulf are not core for their insured(s).
Some insurers shortened the cancellation notice period on policies to just 24 hours. This may be a way for insurers to force quick turnarounds as they seem to be less nervy if the aircraft fly in and turn around relatively quickly.
A cancellation notice does not necessarily mean that cover will disappear altogether. It can instead create a short window in which the insurer reassesses the exposure and offers reinstatement on revised terms. The practical difficulty for an airline is that operational decisions may then need to be made very quickly, while the broker is simultaneously negotiating price, territorial limits and any conditions attached to the reinstated cover.
Are insurers imposing restrictions on particular airports?
I’ve seen some insurers requiring airlines to seek prior permission to fly into certain airports. This has been bizarre at times, for instance one insured party was restricted on flights to and from Jeddah on the west coast of Saudi Arabia, with other KSA airports being acceptable.
Best practice is for customers to inform insurers of unusual stops. In one instance, a widebody flew into Dubai on a non-scheduled flight and insurers charged increased premiums for flying in and then flying out, while also specifying that the aircraft could not be on the ground in Dubai for more than four hours.
If there is a loss and cancellations follow, would capacity disappear from the market?
Even if there is a loss and a flood of cancellations, there’s depth in the market to continue with coverage. Insurers will move in and take advantage of increased premiums, and the chance to build relationships with otherwise very desirable Gulf carrier clients.
The more immediate concern would be the price and shape of that capacity. Following a significant loss, insurers may reduce the amount they are prepared to deploy on any one airline, airport or geographic area, requiring brokers to assemble cover from a larger number of participants, potentially with different conditions and a greater need to monitor aggregation across fleets.
How have Gulf airlines in particular responded?
The Gulf airlines have been very responsive, with many of their representatives flying to the UK and sitting down with insurers to ensure there is a good flow of information between airlines and insurers. It’s important for insurers to understand that their aircraft are being well looked after, and this response helps reinforce the underlying nature of the airlines being desired clients.
Additionally, many aircraft that were not needed for operation were parked in third countries away from the conflict, particularly in Türkiye – sensible action to preserve assets will have been of further comfort to insurers who see that the airline is actively reducing accumulation risk rather than relying solely on the policy.
What is the broader conclusion from the last few months?
In general, it’s clear it has been a busy few months for the market, but brokers are working hard to persuade insurers to continue as normal and not to cancel policies or seek to profit by charging additional premiums (at least at this stage).
