2021: A Look Back

Around this time each year, we like to shed some light on accident data from the prior year. Not only is it informative from an industry perspective, but it also helps explain current rating models in the insurance marketplace. Before we get into the data, it’s important to remember that insurance (of any kind) is a commodity. It ebbs and flows similar to stocks, real estate, and other market-based items. With insurance, market changes are dictated by losses and premiums. At its core, it’s a simple math and economics function. The more losses there are, the more premium reserves are depleted, and the higher the rates go. Conversely, when there’s a surplus of premium and lower claim/loss activity, there’s more market flexibility and rates lower or soften.

We were already in a hard market prior to COVID. Toward the end of 2019, we started to see rates climb, and we saw that all through 2020 and 2021. Unfortunately, that was completely independent of the impacts of COVID. At times, it looked as though the industry was kicking operators when they were down. Through the height of COVID, many commercial operators were grounded or severely underperforming. Combine less revenue with higher insurance costs, and it was a tough pill to swallow. That hard market was driven by record claims, accidents, and insurance payouts. The only way to combat a hard market is to raise rates and/or reduce the loss/accident rate (preferably both). The bad news is that has not been the trend for the last few years — certainly not for 2021.

Last year, we saw the Bizav accident rate double over 2020. Granted, some of that comes from the differences in utilization, but, still, it doesn’t help the market. We won’t get into the accident details or breakdowns here. For that, you can check AIN’s report on this data here. As we look to 2022, we’ll see two trends continue:

  1. Rate increases. Although some may not be as drastic as years past, they will still be there.
  2. Increased utilization. As more people move to private aviation, whether by charter or ownership, flight hours will increase.

With increased utilization comes the increase in accident potential. Some of that added exposure will be captured on the front end through increased rates. However, if accident trends continue, rate increases alone won’t be able to keep pace with claim payouts. If this happens, then we’ll start seeing restrictions in coverage, higher deductibles, stricter pilot training requirements, higher pilot experience standards, and more. Let’s hope it doesn’t get to that point!