tornado

How Weather Events Impact Aviation Insurers

When thinking of aviation accidents, claims, and losses, most folks immediately go to crashes. Rightfully so, because crashes are eye-catching, regardless of how high profile they may be. Losses and claims that tend to be overlooked are weather-related ground events. Sure, they make the news as any large or powerful storm always does. However, the damage they leave behind is often only in the news for a few days before the news cycle moves on. For this reason, the financial impact of even a moderate storm is often forgotten relative to total losses in aviation. In some cases, they can be nine-figure total claims over dozens of aircraft and property. Not to mention lost revenue during rebuilding and repairs. Here’s some great insight from our friend Walter Voigts von Forster at Munich Re on one of the more recent large-scale losses:

  • March 3, 2020: A tornado struck John C. Tune Airport in Nashville damaging many aircraft, most beyond repair. The EF2 tornado (with peak winds of 111 to 135 mph) struck at 1AM, a time at which most aircraft would probably be on the ground. It hit close to terminal buildings and destroyed a series of hangars.
  • Market estimates are 92 damaged or destroyed aircraft, with a total sum insured of $110 million and damage estimates after salvage approaching $100 million. The bulk of the damaged aircraft by number was piston-powered with 74. Additionally, 11 turboprop, 17 jet, and three rotor-wing aircraft were affected. In terms of insured values, the jet aircraft made up 60% of total damage with another 28% stemming from the turboprops.
  • FAA data on the airport would suggest that 154 general aviation aircraft are based at this airport. By that measure, 60% of the aircraft based at the airport were impacted.
  • The event affected 13 GA insurers, with numbers of insured aircraft ranging between one and 18. It, thus, was a true market event. Clearly, the high-value jets are driving up losses for individual insurers, but overall, we would assume this event will cost between 5% and 10% of most insurers’ gross written premium, so it does make a dent in the annual result when this comes on top of “regular” losses.

This highlights the impact of just one major weather event. We all know there are dozens that occur every year. Some are regional tornados, some are massive coastal hurricanes, and some aren’t wind-related at all (hail being the biggest non-wind culprit). It’s important to understand the impact of these events so that non-affected owners and operators have a better understanding of why their rates adjust despite not being affected.

How Do Markets Manage This Risk?

Underwriters manage this risk in several ways. They start by using underwriting information to distill the base of operations or heavy maintenance facilities in an effort to manage the accumulation of insured aircraft. In certain instances, underwriters offer pricing incentives to attract a proper balance of hangared aircraft, and they do make an effort to assess the robustness of hangars for wind and fire perils.

In many cases, underwriters incentivize the evacuation of aircraft for hurricane perils, and they also price for enhanced risk based on specific location perils. In hurricane-exposed areas, underwriters can apply higher deductibles, and in every case, underwriters make certain insured values are both accurate and reasonable.

Beyond the rating of single individual risks, however, managing this exposure at the portfolio level is key, and having an understanding of total accumulation by region is a must. But due to the movable nature of the risks underwriters insure, the base airport can only ever provide a likely scenario of the values exposed in such an event anyway.

In addition to the tornado in Nashville, airports were also struck in Jonesboro, Arkansas, on March 28; Monroe, Louisiana, on April 12; and Walterboro, South Carolina, on April 13. The assumption that aviation losses happen independently from one another does not apply for such exposures and thus will continue to challenge aviation insurers moving forward.