How insurance can help airlines to get flying again

The aviation industry is one of many sectors that has suffered the shock of the global COVID-19 pandemic. Fleets were grounded, and many airlines had to furlough or lay off staff. As the sector looks to green shoots of recovery, Dzung Nguyen-Tu, Global Chief Underwriting Officer – Aviation and Space at AXA XL and recently appointed to the executive committee of the International Union of Aerospace Insurers, discusses how insurance can enable the industry to keep passengers flying.

You were recently appointed to the Executive Committee of the International Union of Aerospace Insurers. How does the IUAI work and how can such an organisation help in the effort to keep airlines flying? 

The IUAI is a really important organisation for our industry, it is a global body with a mission to represent the interests of its members to governments, professional institutions and associations. It was a great honour to be appointed to the executive committee.  The IUIA also provides information and research to help insurers understand the challenges faced by the aerospace industry and the evolution of the risks insurers need to address. Once a year, during the annual general meeting, the conclusion of the work of the seven study groups -(airlines; cyber and emerging risks; general aviation; manufacturers, products and airports; legal and claims; and space risks- are presented and discussed. Although this year annual meeting was held virtually, in the wake of the COVID-19 pandemic, it was particularly useful.

How did the COVID-19 crisis affect the airline industry and how can insurance help it to rebuild?

For the airline industry, the fact that people were prevented from travelling posed a huge financial challenge. At the height of the crisis, some 95% of the worldwide aviation fleet was grounded. It’s estimated that, globally, airlines in 2020 have incurred about $500 billion in lost revenue caused by a more than 50% drop in passenger numbers. The industry’s net losses are thought to be between $85 billion and $100 billion. As lockdown restrictions began to ease, it became clear that understanding passengers’ fears was going to be an important way to help the industry recover. Those fears were not necessarily about being exposed to COVID-19 on a flight, many passengers were concerned about what would happen if they fell ill just before a trip – meaning they had to cancel their flight – or if they fell ill during a trip meaning that they had to stay away from home longer or, in the worst case, be repatriated. 

As an insurer we looked at ways we could help those wanting to travel have peace of mind and, through AXA Partners, have worked to provide our clients with access to medical assistance and repatriation services for their customers, in these challenging times.

And to date, we are seeing great interest from airlines.

Any other initiatives?

Airlines’ loss of revenue linked to COVID-19 business interruption were not covered under standard aviation policies. Although the aviation insurance community agrees that covering a pandemic could not have been envisaged, we are looking at the concept of developing a global pool to provide funding for airlines in circumstances where further catastrophic business interruption events occur. Any such scheme needs to recognise that, at present, the airlines face significant shortages in cash. Against this backdrop, a suitable method of funding the scheme would need to be found involving insurers, reinsurers and travellers. At this stage this is still very much a discussion at IUAI and at national level with the relevant insurance associations. This is an ambitious project! It would need the support and engagement of governments to endorse the plan and act as backstops. But the global nature of our industry and the industry we insure, mean that we can be hopeful that some form of solution will emerge.

Authored by AXA XL