As we see it, 2013 ends another year of relatively soft market rates in all sectors of general aviation. While the market conditions have remained the same for several years, the reasons for that soft market are changing.
At first, increased market competition pushed rates down, in a classic demonstration of the theories of supply and demand. Now, however, rates are being held down by the more long-term forces of structural overcapacity, and thankfully, favorable loss history.
While conventional thinking was that falling rates would eventually push aviation insurers into the red, causing a push for rate increase, insurers have instead been able to stay profitable even at lower rate levels. Lower interest rates, which require insurers to focus more on underwriting profits, were also thought to be a future justification for eventual rate increases.
Instead, over the last two years, we have seen many insurers attempting to make a profit on a smaller piece of the pie, and for the most part they have succeeded. While expense control spurred some of that success, insurers have stayed in the black primarily due to the absence of significant general aviation fatality accidents. As long as this continues, we do not anticipate any real pressure on rate increases. The world’s reinsurers, which are quite profitable, are not exerting any significant pressure on insurers through the premiums they charge for reinsurance. And many insurers are buying less reinsurance anyway. There now seems to be an equilibrium reached: all parties are rather satisfied with their share of the insurance pie, with little incentive to start a rate war to increase market share. With the insurers more focused on the expense side, it will be more difficult for them to differentiate themselves in any meaningful way.
As a result, the key differences in insurance services now lie with brokers, rather than the insurance companies that actually underwrite your policies. The more services you receive, the greater value you get for your insurance dollar. We at NationAir will continue our tradition of always improving and adding new services that address your risk management needs. And we will always stay focused on our mission to build and maintain outstanding relationships with you.
I welcome the opportunity to discuss market conditions and hear your thoughts on industry trends. Feel free to contact me directly at 630-584-7552 or via email at
On behalf of everyone at NationAir, we wish you the best in 2014.
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