HomeNEW YORK:(AP) One bright spot for airlines struggling with competition and high fuel prices is insurance premiums, which have fallen significantly this year and are unlikely to rebound much in 2008 despite a sharp jump in payouts.
Insurance broker Aon Corp. says airline insurance premiums dropped about 15 percent this year. At the same time, insurance payouts jumped 20 percent, meaning the average insurance policy will lose money this year for the first time since 2000.
While that means insurers will try to hold the line on rates or even raise premiums as policies come up for renewal next year, analysts say tight competition makes big rate hikes unlikely.
"Given the amount of capital sloshing around in the insurance industry, the near-term outlook for raising pricing, and regaining an underwriting profit, appears poor," said Donald Light, senior analyst at Celent LLC, a Boston consulting firm.
Airline insurance premiums have dropped because of tight competition among insurers and because there have been fewer airline-related insurance payouts in recent years. A low number of claims has prompted insurance companies to boost their airline insurance businesses, analysts say.
"A large amount of underwriting capacity is still available at the moment," said Aon in a recent market report. Aon notes that about 50 airlines have changed insurance providers this year, a sign that insurers are fighting tooth-and-nail for their business. Also, insurance premiums are based in part on what happened in previous years. Premiums have fallen this year in part because airlines suffered fewer accidents and liability claims in 2006.
While there have not been many headline-catching airline accidents in 2007, total claims are on a pace to grow by 20 percent over last year, said Aon spokesman Rahsaan Johnson. For instance, in November an Iberia jet overran a runway in Ecuador, hurting nobody but causing the $200 million (€139 million) plane to be declared a partial loss. In late November, and Atlasjet plane crashed in Turkey, killing 56. While the plane was valued at $8 million (€5.6 million), liability claims for casualties will likely be much higher.
Despite the jump in payouts, insurance companies will find they don't have the pricing power to raise premiums much next year, analysts say. "New (competition) has entered the market ... pushing rates down dramatically to where it has breached the inflection point of profitability," said Michael Paisan, managing director at Stifel Nicolaus & Co. Inc., in New York.
That's good news for airlines, who have suffered fuel increases of 47 percent this year and face tough competition in their own markets. Credit Suisse analyst Daniel McKenzie cut stock price targets on every major domestic airline Thursday, citing the high cost of oil and a potential recession.
http://www.iht.com/articles/ap/2007/12/20/business/NA-FIN-US-Airline-Insurance.php
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