Aircraft Insurance Market

Market Overview

The global aircraft insurance market size was valued at USD 14,505 million in 2022. It is estimated to reach USD 18,893 million by 2031, growing at a CAGR of 2.98% during the forecast period (2023–2031).

Aircraft insurance is insurance provided by the insurer to cover risks about aircraft operations. Various damages/losses the insured airlines suffer are covered under insurance policies offered by the insurers. A string of aviation mishaps, most notably the inexplicable disappearance of Malaysia Airlines with over 200 passengers on board, have boosted the number of people purchasing aviation insurance and significantly raised the number of claims. Flying is perceived as extremely dangerous as airplane tragedies frequently generate great concern, making aviation insurance necessary.

Market Dynamics

Market Drivers

High Cost of Aircraft Repair

The number of maintenance, repair, and overhaul (MRO) facilities has grown proportionally to the aviation industry's explosive growth. The MRO industry has recently witnessed a continuously growing demand for MRO technicians. On the other hand, the number of technicians opting for jobs in the MRO industry has also declined. As a result of increasing demand and the declining number of MRO technicians, the aviation industry has been facing a shortage of workers. The primary factors contributing to this shortage include insufficient wages/benefits and heavy competition.

In addition, the cost of MRO services has increased due to a lack of qualified MRO specialists in the aviation industry. The price of MRO services was already high, and it continues to increase with the growing shortage leading to insurance plans coming into use. Some of the aircraft insurance plans available in the industry cover the repair costs for the aircraft in the fleets of airlines. Therefore, the high cost of fixing an airplane will likely drive the growth of the global aircraft insurance market during the forecast period.

Stringent Government Regulations Pertaining to Aircraft and Passenger Safety

Flight safety has become an even more critical matter of concern over the past decade among airlines, owing to the occurrence of several fatal airline mishaps in the recent past. Airlines have collaborated with aviation agencies and safety authorities on new safety standards to increase aircraft safety and reliability. The airline operators also focus on insurance programs to cover damage and financial loss. Aviation insurance can be broadly categorized into hull insurance, passenger legal liability, and third-party liability. The hull insurance is for the aircraft itself, while the passenger's legal liability is for providing insurance coverage to onboard passengers if they get harmed or injured. Third-party liability covers the losses/damage caused while the aircraft is in operation, such as an event where it crashes down on the ground. Thus, stringent government regulations about aircraft and passenger safety will likely drive the global aircraft insurance market growth during the forecast period.

Market Restraint

Existing Backlogs in Aircraft Deliveries

Over the past decade, the global commercial aviation industry witnessed continuous and significant growth up until the emergence of the COVID-19 pandemic last year. The operating profits and margins continued to increase, allowing the airlines to buy new aircraft. Thus, the number of new aircraft orders surged. As a result, the backlog in aircraft deliveries continued to increase, reaching an all-time high in 2021. In addition to increasing demands for new aircraft from airlines and leasing companies, rising air passenger traffic and retirement and replacement of aircraft in service further propelled the commercial aircraft backlog.

With an all-time high number of planes on order, airlines chose and continue to choose insurance coverage to cover various situations. The amount of money spent on claims in the aviation industry has recently exceeded overall insurance premiums. Thus, existing backlogs in aircraft deliveries are expected to restrict the global aircraft insurance market growth during the review period.

Market Opportunities

Reduced Market Entry Barrier

The existing players operating in the aircraft insurance market have witnessed financial losses over the past few years. The economic losses can be ascribed to the amount of money paid in claims that have outrun total insurance premiums in the aviation sector over the past few years. Additionally, some insurers are unwilling to provide the same kind of premium relief in pre-COVID times, encouraging new players to enter and add new capacity to the global aircraft insurance market. With the market entry barrier significantly reduced, there are lucrative opportunities for new entrants in the worldwide aircraft insurance market.

Unlike existing insurers who experienced financial losses over the past few years, new insurers can develop strategies to attract clients. New insurers can provide the same kind of coverage for various risks associated with the aviation industry that the existing insurers offered in the pre-COVID-19 times. Thus, a reduced market entry barrier will likely create significant growth opportunities for players, particularly new insurers, operating in the global aircraft insurance market during the forecast period.

Regional Analysis

By region, the global aircraft insurance market is divided into North America, Europe, Asia-Pacific, the Middle East, and the Rest of the World.

North America Dominates the Global Market

North America is the most significant global aircraft insurance market shareholder and is anticipated to grow at a CAGR of 2.50% during the forecast period. The region will likely continue dominating the market over the coming years, primarily due to the rise in airport operations and the proliferation of airport infrastructure in the region. The North American aviation industry has witnessed rapid growth over the past two decades, leading to a rise in airport operations and the proliferation of airport infrastructure in the region. As a result, the need for safe and affordable airport infrastructure has become essential to regional airlines and passengers.

Additionally, associations like the International Air Transport Association (IATA) have worked closely with airport and government officials on several airport development projects to ensure that airlines operating in the region have the proper facilities and infrastructure. They have also been trying to create a vision of the airports for the future to improve the efficiency of air travel in the area while anticipating long-term air passenger traffic. The development projects involving new and existing airports also require insurance coverage to cover financial damage/losses.

Asia Pacific is expected to grow at a CAGR of 3.35% over the forecast period. The growth in the region can be ascribed to the presence of emerging economies in the region. With an increase in the per capita disposable income, the countries in the region have witnessed rapidly rising air passenger traffic over the past decade. The growing middle class and increasing demand for aircraft are expected to propel the growth of the aviation industry, thereby leading to rising demand for aircraft insurance in the region. Furthermore, regional airline operators are increasingly expanding their operations and adding newer aircraft to their fleets. As a result, their liabilities have increased, thereby driving the demand for liability insurance in the region. In addition to liability insurance programs, large airline operators are also opting for umbrella insurance to cover the high liability costs in events such as an aircraft crash. Thus, the market for insurance for regional aircraft is likely to grow a lot during the review period.

Europe is one of the important markets for aircraft insurance companies. The aircraft insurance market in the region is forecasted to register considerable growth over the coming years, mainly driven by strict government regulations regarding aircraft and passenger safety. The regional airlines have collaborated with aviation agencies and safety authorities, including European Union Aviation Safety Agency (EASA) and International Air Transport Association (IATA), on new safety standards for increasing aircraft safety and reliability. The airline operators also focus on insurance programs to cover damage and financial loss. The general aviation insurance industry is expected to grow with an increased focus on aircraft and passenger safety. Therefore, the European aircraft insurance market will likely grow considerably over the coming years.

The Middle East aircraft insurance market is forecasted to grow relatively slower during the forecast timeline, driven by the presence of prominent airlines and the growing regional aviation industry. The increasing air passenger traffic in these countries has been responsible for the rise in aircraft demand and, essentially, the need for aircraft insurance in the region. Local solid airlines, such as Emirates, Qatar Airways, and Etihad Airways, are likely to boost further the growth of the aircraft insurance market in the region. Thus, much of the development of the Middle East aircraft insurance market is owed to the strong economies in the Middle East, including Saudi Arabia and the UAE.

Segmental Analysis

The global aircraft insurance market is segmented into type, application, and end-user.

By type, the global is divided into public liability insurance, passenger liability insurance, combined single limit (CSL), ground risk hull (motion) insurance, ground risk hull (non-motion) insurance, hangar and ground support equipment insurance, in-flight insurance, and umbrella insurance.

The public liability insurance segment is the highest contributor to the market and is expected to grow at a CAGR of 3.02% during the forecast period. Public liability insurance covers damages to third-party properties and entities caused due to an aircraft in its operation. This kind of insurance is generally mandated by law in most countries. Additionally, it does not cover the damages done to the aircraft in consideration and the passengers in it. Due to strict government restrictions, public liability insurance is required to get passenger liability insurance to safeguard passenger damages. Furthermore, businesses strongly emphasize developing new avenues for income production and growth, increasing the preference for advanced machine-learning algorithms across industries.

Ground risk hull (non-motion) insurance covers damage to an aircraft when it is stationary and not in motion. The insurance typically covers damages caused by vandalism, lightning, hail, animal damage, theft, and uninsured airplanes and cars. The coverage measurement may be a blue book value or an agreed-upon value determined at the insurance purchase. The fact that the insured aircraft is referred to as having a "hull" hides the fact that aviation insurance originated from marine insurance. Typically, hull insurance includes a deductible to discourage frivolous or minor claims.

By application, the global is divided into commercial aviation and business and general aviation.

The commercial aviation segment owns the highest market share and is expected to grow at a CAGR of 3.18% over the forecast period. Commercial aviation refers to regularly scheduled flights that carry passengers or goods out of bigger tarmac airports. Commercial aviation insurance covers all kinds of risks associated with commercial aviation. Commercial aviation insurance covers accident-related physical damage to an aircraft, liability for passengers, harm to the environment, and injury to third parties. It includes coverage for charter aircraft, fixed base operators, flight training facilities, agricultural aircraft, property/hangar insurance, workers' compensation coverage, pay-by-the-hour coverage, and aircraft maintenance insurance.

Business and general aviation refers to all civil aviation operations, except commercial air travel or aerial work, which is referred to as specialized aviation services for other uses. Business and general aviation aircraft insurance covers all business and general aviation risks. It includes insurance coverage for single private aircraft, business aircraft, and commercial airline fleets.

By end-user, the global is divided into airlines, airports, aircraft product manufacturers, leasing companies, ground operators, general aviation aircraft operators, air taxi operators, corporate aircraft operators and owners, and maintenance, repair and overhaul (MRO) companies.

The airline segment is the highest contributor to the market and is anticipated to grow at a CAGR of 2.81% over the forecast period. Airlines insurance covers the risks associated with all types of airline operators. The insurance coverage includes all cargo and passenger airline classes, ranging from a single aircraft to large airline fleets.

An aircraft's particular repair, service, or inspection is referred to as aviation MRO. Maintenance, repair, and overhaul (MRO) companies are exposed to various risks, particularly liability to third parties if their aircraft get damaged. At the same time, they are in the care of MRO companies. This kind of insurance covers all these risks.

Recent Developments

• December 2022- Arthur J. Gallagher acquired Aviation Insurance Australia.
• January 2023- KKR, a leading global investment firm, and Altavair L.P., a leader in commercial aviation finance, announced that KKR is making an additional USD 1.15 billion commitment to expand its global portfolio of leased commercial aircraft in partnership with Altavair.