Aviation industry faces new risks, rising claims costs despite improved safety

Despite several recent disasters, the aviation industry’s safety record has improved over the long term, although new risks are presenting a threat to the industry, according to a new report from Allianz Global Corporate and Specialty.

Currently, there are fewer than two deaths per 100 million commercial air passengers, a massive improvement over when the commercial jet industry was in its early stages, Allianz says. Between 1962 and 1971, there were 133 deaths per 100 million passengers, it suggests.

However, the “increasing likelihood of cyber attacks, greater reliance on automation and the anticipated growth of drones in commercial use” are all presenting risks to the aviation industry moving forward.

“New generation aircraft are highly exposed to cyber crime due to the prevalent use of data networks, onboard computer systems and navigation systems,” Ludovic Arnoux, AGCS’s global head of aviation risk consulting commented in a statement on the report.

“Data breaches and cyber attacks are perceived to be growing risks,” Arnoux added.

The cost of aviation claims is also rising because of new plane materials, liability-based litigation and “ever-more demanding regulation,” according to Allianz.

Graphic: “Danger of death. What are the odds?” (Source: Allianz)

“Today there are fewer fatalities or total hull losses compared with the past, but new types of risk and losses, such as composite repairs, ground equipment damage or the risk of grounding, are additional drivers of exposure,” Henning Haagen, global head of aviation for the EMEA and Asia Pacific regions at AGCS said in a statement.

“Increasing fleet values and a rise in passenger numbers is expected to push the value of risk exposure through the $1 trillion barrier by 2020, possibly even earlier.”

Plane crashes account for 23% of the number of claims above $1.36 million (1 million euros) generated among large insurance companies and 37% of subsequent value, based on Allianz’s analysis.

“However, almost as many aviation claims by number (18%) relate to ground handling claims and 16% to mechanical failure,” it noted.

Regionally, North America and Europe have the best records for aviation losses, while Africa and Asia fared poorer, according to the report. In 2012, 88% of global aviation fatalities occurred in Africa (45%) and Asia (43%).

“In some parts of Africa, safety and training standards are comparable to those of 50 years ago in the U.S. or Europe,” Allianz noted. Africa also has the highest-percentage of second generation aircraft.

Analysis of crashes between 2003 and 2012 suggests most accidents occur during descent and landing (57%), followed by the climb stage of the flight (24%), Allianz said. Only 9% occur during the cruise stage.

“Analysis also shows there is no such thing as a safest seat on a flight, as no two crashes are comparable,” Allianz said.

In terms of causes of plane crashes, an estimated 70% of fatal accidents are due to pilot error, according to Allianz, although automation is not necessarily a fix, since pilots could become too dependent on it.

“More focus should be placed on continuous training with pilots flying with and without automation,” Sebastien Saillard, head of aviation claims at AGCS noted in the statement.

“Basic airmanship remains essential to safely operate any aircraft and in particular if, for any reason, automation is unavailable.”