Reshaping Aviation Insurance: WTW’s Insights on Gray Zone Conflicts
The aviation industry is facing unprecedented challenges in the realm of insurance as geopolitical tensions continue to rise, according to insights from WTW. Jared Seth, managing director of global aviation and space at the firm, highlighted the impact of “gray zone” conflicts on both insurers and insureds.
Understanding gray zone risks
Gray zone conflicts, characterized by actions that fall short of open warfare, are on the rise. These activities, such as sabotage and cyber interference, pose significant challenges for aviation insurers. Recent incidents, like explosions at courier depots, serve as stark examples of the sector’s vulnerability to such risks.
The disruption of GPS systems through spoofing or jamming is another growing concern. While these actions are typically targeted at military objectives, commercial aviation systems are not immune to their effects. Seth cautioned that attributing responsibility for aviation mishaps caused by GPS interference could lead to prolonged claims resolution processes, potentially invoking policies like AVS103A for partial claims payments.
Impact of aviation-related sanctions
Economic sanctions, particularly those directed at Russia post its invasion of Ukraine, have added another layer of complexity for aviation insurers. The prohibition of insurance or reinsurance for aviation goods and services related to sanctioned nations has created uncertainty in the industry.
Ambiguities in the interpretation of sanctions language, such as the EU’s ban on insurance for goods “for use in Russia,” have further complicated matters for insurers and operators. While clarification eventually came from EU authorities, the interim uncertainty disrupted operations and strained insurer-client relationships.
Nuclear risk and insurance termination
The looming threat of nuclear weapons, whether through state actions or terrorism, poses unique challenges for aviation insurers. Policies often include automatic termination clauses in the event of a nuclear detonation or war outbreak between major powers, leading to potential grounding of global fleets in gray zone conflicts.
Q4 2024 aviation insurance outlook
Looking ahead to Q4 2024, Seth shared insights on emerging gray zones from WTW’s General Aviation Insurance Market Outlook. While overcapacity has allowed insurers to reduce rates for operators with favorable claims histories, coverage for excess war liabilities remains limited, resulting in modest rate increases during recent renewals.
In conclusion, as the aviation industry braces for 2025, operators are urged to proactively engage with brokers and demonstrate robust risk management practices to secure favorable renewal terms. These measures will be crucial in navigating the evolving aviation insurance landscape shaped by geopolitical and technological shifts.
