9 Emerging Risks Facing the Aviation Industry as It Reopens

The aviation industry is rebounding after COVID-19 but it may never look exactly like it did pre-pandemic.

By: Abi Potter Clough | July 21, 2021

The aviation industry was struck hard by COVID-19 issues around the world as passenger and commercial air traffic was grounded. People weren’t traveling, and supply chain disruptions meant consumer goods weren’t moving, either.

The FAA forecasts carrier profitability and other issues will continue to be impacted for several more years following the effects of COVID-19 on the global air travel business.

Different risks have emerged from the pandemic as industries start to reopen and return to normal operating procedures and volume. The aviation industry has seen its share of new challenges, risks, and opportunities to arise from COVID-19 shutdowns.

Allianz Global and Corporate Specialty (AGCS) recently released its report, Aviation Trends Post COVID-19, featuring nine emerging issues to watch as the industry reopens. Here’s what’s in store:

1) Rusty pilots returning to the skies.

As scary as it sounds, pilots are only human — they can get out of practice when they don’t fly often, leaving them susceptible to errors.

While commercial pilots have had to maintain their skills by practicing takeoffs and landings to be allowed to fly commercial jets, private pilots operating leisure flights are not held to the same standards. This creates a risk when leisure pilots return to the air.

2) Passengers are expressing ‘air rage’ more frequently.

We’ve heard reports of people fighting in grocery stores, restaurants and at the beach over masks throughout the pandemic, and those same incidents are happening in the not-so-friendly skies, too.

Flight attendants are forced to regulate mask-wearing, which has become a political issue in the U.S. This could lead to discrimination lawsuits in the future, as has happened to other businesses that have enforced mask-wearing.

The AGCS report noted by June 1, 2021, there were around 3,000 incidents of serious disruptions onboard airlines as reported by the FAA, which is a drastic increase from the usual 150 annual reports.

3) Parked airline fleets cause new perils.

Grounded planes created new perils through the height of COVID-19 shutdowns, when up to two-thirds of the global fleet was parked, even through now as air traffic still hasn’t resumed to pre-pandemic levels.

Parked planes can be damaged by hailstorms, lightning, flood and other natural disasters. They are also at risk for damages caused by disuse to the various systems of the plane.

If a plane is going to be stored for a long time, fuel should be drained to avoid corrosion but if lockdown came unexpectedly, and grounding was a necessity, this may not have been done, which could lead to further damages.

4) A shortage of pilots brings new risks.

Pilot shortages were already an issue around the world before COVID-19.

Like many industries that are experiencing a shortage of workers as Baby Boomers retire, the aviation industry is no different. Pandemic-related issues have exacerbated this shortage as new pilots are unable to train to fly. It’s expensive to teach new pilots when claims from flight school accidents have increased along with the cost of planes.

The AGCS report warns this could lead to pilots being allowed to fly after having less training, especially in less regulated countries. This leads to increased safety and risk management concerns when less experienced pilots and flight crews are managing commercial flights.

5) New aircraft brings higher replacement, maintenance costs.

New airplanes are sleeker, safer and more expensive to purchase and repair.

Similar to how technological innovations in private passenger autos can drive up the cost to insure them, newer aircraft with the latest technology are more costly to replace and repair — which can lead to higher insurance costs.

6) Air cargo will continue to do well.

AGCS noted airlines in both the U.S. and Europe did well by using passenger planes to transport cargo more frequently.

This sector continues to perform well, with the International Air Transport Association predicting a 13% growth in air cargo in 2021. Airlines that can pivot to air cargo over passenger flights may fare better than peers.

Transporting cargo more often than people brings with it different risks, but the airlines may face fewer risks overall by reducing the number of people they transport.

7) Business travel remains in question.

For the frequent road warriors, a few weeks off from constant business travel when lockdowns began was likely welcomed news.

But corporate travel has still not recovered to pre-pandemic conditions, and it remains unknown when or if it will. Some companies are still forbidding company travel through the rest of 2021.

Driven by necessity, people found new ways to do business during the pandemic when meeting in person was impossible — and many people want to continue to do business in these virtual ways.

Companies experienced the savings factor from no corporate travel, and individuals felt the time savings by not commuting or traveling to conferences and business meetings. These factors mean air travel for business may not resume to pre-pandemic levels.

8) Route innovation arising from COVID-19.

An interesting positive effect stemming from the pandemic is an increase in routes being introduced in 2021 — 1,400 are scheduled for the year.

Many of the new routes are being introduced by smaller players, like Ryanair, which are using the disruption to the industry to get creative about their flight patterns and air routes.

As with any new idea, new flying routes introduce risks not seen previously. Whether the new routes will cause higher rates of accidents or issues is not yet known.

9) Aircraft instruments at risk of insect infestations.

As aircraft return to the air following COVID-19 grounding, some have already experienced issues with instrument readings. When traced to their cause, insects have been the culprit, infiltrating sensitive pressure-sensors within the aircraft and causing malfunctions, according to the European Aviation Safety Agency.

This is because insects are good at getting into small places through tiny openings and building nests. For any plane or aircraft grounded for longer periods of time, insect control will be a must moving forward.

Looking Ahead

The aviation industry is rebounding after COVID-19 but it may never look exactly like it did pre-pandemic. New risks and rewards are arising every day as the industry recovers and finds new ways to do business. The risks from aircraft and pilots coming back into service remain steady as more carriers return to the air.

Commercial insurers will need to stay innovative and ahead of these emerging risks to help the aviation industry keep people safe as it reopens. &

Abi Potter Clough, MBA, CPCU, is a keynote speaker, author and business consultant focused on Insurtech, leadership and strategy. She has over 15 years of experience at a Fortune 500 company with expertise in P&C claims operational leadership, lean management consulting, digital communications and Insurtech. As the past chair of the International Insurance Interest Group of the CPCU Society, Abi remains involved in many international initiatives and projects. She has published two books about change management and relocation. Abi can be reached at [email protected].

Why Insureds Might See an Uptick in M&PL Claims

George Schalick, Jr., Senior Vice President of the Management and Professional Liability Division, Philadelphia Insurance Companies

The current soft market might come as a bit of a surprise as it does not track with previous underwriting cycles and economic conditions. Afterall, many privately held and non-profit organizations struggled during the early days of the pandemic with shutdowns and rapidly declining revenues. But the Government assistance programs, like the Paycheck Protection Program loans, helped keep many afloat during the tough times.

“During COVID many organizations stopped doing business until they were able to sort out all of the health and safety challenges,” Schalick said. “They were forced to lock down, but then all the government assistance programs allowed them to keep people employed. The increased volume of claims we anticipated we would see coming from the lockdowns and restrictions that were imposed upon businesses in the U.S. didn’t manifest at first.”

“Just because there wasn’t an onslaught of reported claims at the beginning of the pandemic, doesn’t mean the circumstances that would give rise to a claim being reported didn’t occur. Courts and the judicial system were closed or slowed and now that they are back open, we’re starting to see the circumstances that occurred during the COVID lockdowns becoming claims today,” Schalick said. “Litigation is progressing.”

Added to the delayed pandemic litigation is a concern over newer claims that might be filed as the country inches toward an economic downturn. Though a recession was avoided in 2023, experts think a soft dip could occur in 2024, with 76% of economists saying there’s a 50% or less chance of an economic downturn this year — that almost always results in more management liability claims.

“During the Great Recession in 2008, we saw an almost immediate spike in claims because of the economic conditions and the pressure it placed on organizations. They were making personnel changes with significant belt tightening almost immediately.” Schalick said.

What’s in Store for M&PL Policy Rates in 2024?

Despite an uptick in claims and increased economic uncertainty, management liability rates haven’t increased, resulting in market-wide pricing levels that may not meet the increased pressure of rising settlements and jury verdicts.

“Rates are going the other direction and settlement values are not falling,” Schalick said.

The mismatch between rates, claim frequency and severity is, in part, because carriers experiencing the dramatic soft market in the public D&O market are seeking premium gain in the private and non-profit market.

“In the public company market, the rates have been decreasing significantly. The rates were increasing in the private, not-for-profit market, and rightfully so, but there’s a desire to supplement overall mid-size D&O for carriers who also write private not-for-profit, and they see that as an opportunity to aggregate premium,” Schalick said. “So the always competitive landscape in the private, not-for-profit market has dramatically increased in the last 18 to 24 months.”

Still, companies of all sizes and types should be concerned about management liability rates in the future. Legal system abuse is resulting in increases in both the amount of litigation and the size of verdicts plaintiffs are receiving.

Certain areas of the country are particularly vulnerable to this type of legal system abuse. As a result, insureds in these localities are likely to be vulnerable to rate increases.

“The environment is so positive for the plaintiff that forces premium increases so carriers are able to stay in that market long term,” Schalick said.

Why a Tenured Carrier Partner Can Help Insureds Navigate An Uncertain Market

It’s clear that insureds are facing an uncertain M&PL market over the next few years. Fortunately, carriers with a long history in the M&PL space will be there to offer stability.

Philadelphia Insurance Companies has been supporting this market for 35 years. PHLY is committed to offering long-term rate stability, even as economic and claims trends start to push premiums upwards. They have an appetite for all sorts of companies, large and small, for-profit and nonprofit alike.

“We’ve been at this game for a long time and are one of the most tenured underwriters in this space,” Schalick said. “We like to stay very consistent.”

PHLY has worked with both for-profit and non-profit on management liability policies. With dedicated M&PL teams throughout the company’s 13 regions, PHLY provides the support agents and brokers are looking for on behalf of their clients. The teams know their regions well and can respond to local trends. They’re also dedicated to making the renewal process as easy as possible for their partners and policyholders.

“We have real confidence in our results, so we focus a lot on making the renewal experience as painless as possible for all agents and insureds,” Schalick said.

The company is also investing in tools to help insureds avoid losses. Earlier this year, they launched a new online risk management platform, PHLYGateway, which offers resources for insureds on how to create an employee handbook and trainings on issues such as recognizing workplace sexual harassment and discrimination.

If insureds have questions, they can consult a Best Practices Help Line, provided via the platform. That way, they can get on the spot risk management guidance to help them prevent claims.

To learn more, visit: https://www.phly.com/mplDivision/managementLiability/default.aspx.

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Philadelphia Insurance Companies. The editorial staff of Risk & Insurance had no role in its preparation.