The US aviation insurance market is currently seeing a rare easing of rates after years of increases. However, this relief may not last long, according to Jon Howard, the CEO of Mach 2 Underwriters and a licensed pilot. He warns that rising repair and replacement costs, driven by tariffs and changes in global supply chains, could soon reverse this trend.
Howard noted that while rates are currently declining, he expects this to be a short-term situation, lasting about 12 to 24 months. He explained that the rising costs of claims are outpacing the benefits of a soft market. This is particularly concerning for smaller aviation operators, such as flight schools and aerial mapping businesses, which already work with tight budgets and face complex risks.
The aviation industry is feeling the impact of inflation not just from tariffs but also from increasing costs for parts and labor. Howard pointed out that even without tariffs, prices would still rise due to ongoing inflationary pressures. He emphasized that tariffs are an additional burden, adding between 10% to 20% to already rising costs.
Aircraft maintenance relies heavily on global supply chains. Although many planes are assembled in the US, they often require imported parts. This dependence makes aircraft owners vulnerable to fluctuations in international trade. As the costs of new aircraft increase, so do the prices of used planes and salvaged parts, creating a ripple effect in the market.
Insurance clients in aviation are facing two major worries: the cost of premiums and the availability of necessary coverage. Howard mentioned that some insurers are reluctant to offer hull coverage, while others do not provide sufficient liability limits, making it especially difficult for less experienced or older pilots to secure the insurance they need.
The reinsurance market also plays a significant role in the current situation. In early 2022, Russia’s seizure of hundreds of leased commercial aircraft led to massive potential losses in aviation insurance. This event strained the reinsurance sector, resulting in reduced capacity and increased costs for insurers, which ultimately affects clients as well.
As the market stabilizes, Howard cautions that any resurgence in geopolitical tensions could quickly shift the market back to a hard cycle, reversing the current trend of easing rates.
For aircraft owners and operators, Howard advises proactive risk management strategies. Choosing aircraft that are easy and cost-effective to repair can lead to better insurance deals. Additionally, aligning with the right insurer and maintaining a high standard of pilot training can help manage costs effectively.