Aviation technology evolving side-by-side with risks

Aviation technology evolving side-by-side with risks | Insurance Business

Aviation technology evolving side-by-side with risks

As Asia-Pacific economies develop, the region’s air traffic has grown rapidly, as well.  Data from the International Air Transport Association (IATA), showed that Asia-Pacific will be the biggest driver of aviation demand from 2015 to 2035, with more than half of new passenger traffic coming from the region.

Meanwhile, China is predicted to eclipse the US as the world’s largest aviation market by around 2024.

According to Andy Pickford (pictured), regional director for Asia at McLarens Aviation, regional airlines are growing (particularly budget carriers) and continuing to invest in new technology and services, both in the air and on the ground. These developments are broadly positive for operators, manufacturers and aviation insurers operating in the region.

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However, as aircraft technology evolves, along with the way that maintenance and repairs of aircraft are handled, Pickford pointed out an accompanying increased cost related to certain insurance claims. 

“Indeed, the adoption of new composite materials in aircraft, the control of the spares market by manufacturers, and the impact of long-term Power By the Hour (PBH) maintenance contracts have all contributed to making the ad-hoc post incident repair of some aircraft and engines notably more expensive,” he said. “Though not confined to Asia, these issues are an increasing concern for our clients in the region.”

A specialist aviation loss adjuster, McLarens Aviation handles claims relating to a broad range of aviation risks, including first- and third-party hull damage, physical damage to property, bodily injury, third party liability, hangar keeper’s liability, and product liability.

One rising risk for the aviation industry that Pickford pointed out was cyber risk.

“Cyber risk is a topic that is generating a lot of interest in the aviation community and, as technology develops, it is important for our industry to fully understand and, where possible, prevent any risks to flight safety,” he said. “Yet while there have been examples of airline’s external IT systems being breached, we have thankfully yet to see an aircraft’s operational systems being compromised.

“While a disruption to passenger services is of concern to the traveling public, their safety remains a top priority and most in the industry would agree that the systems and processes in place are robust enough to keep any potential risks to safety at a bare minimum. In fact, we would go so far as to say that any concerns there are for external hacks via things such as the cabin communications systems are considerably overrated.”

Adapting aviation risk management
According to Pickford, the advances in technology both in aircraft and on the ground have contributed to a consistently safer record for the industry over the past few decades, and these developments continue to be at the forefront of aviation risk management alongside increasing regulatory oversight.

“On the airport side, many operators are also taking an increasingly proactive approach to liability losses and improving safety by using claims management information to identify issues such as accident hotspots,” he added.

Beware of attritional losses
Due to the previously mentioned improvements in technology and safety regulations, the industry has seen a greatly reduced number of major aviation losses. However, according to Pickford, this has resulted in an increase in attritional losses – or daily losses, typically in the US$5 million to US$10 million loss bracket. He attributed this to an increase in equipment values and more advanced technology, which gets ever more complex and expensive to repair. These losses erode the premium base and remind risk managers that in order to control costs, claims need to be managed more efficiently, effectively and technically.

“In addition to developments in technology, the growth in passengers and air traffic are also having an impact on attritional losses,” Pickford said. “We regularly handle ground collision claims and we have seen no improvement in claims numbers, in part because of the fact that industry growth appears to be outpacing infrastructure. Many airports, both in Asia and across the globe, are running at increased capacity and this is creating challenges from a space perspective. This growth is only projected to increase and while new airports are being constructed this takes time and therefore the current infrastructure will, in many cases, need to be adapted to cope with increased movements.”