Aviation Risk Report 2020

Liability claims per passenger are increasing with many US plaintiff attorneys seeking higher awards from a wider range of incidents in light of fewer major airline losses. Higher awards are challenging at a time of growing passenger numbers and larger aircraft which can carry hundreds of passengers. With potential awards per passenger in the millions of dollars, a major aviation incident could subsequently result in a liability loss of $1bn.

Insurers are also seeing a higher level of foreign object damage claims. There were more than 14,600 reported collisions with wildlife in 2018, according to the US Federal Aviation Administration. Bird strikes are a notable contributor to aviation insurance claims resulting in excess of €330mn ($364mn) of damages in the past five years – over 1,000 claims were received by insurers, according to AGCS analysis. The average claim costs around $360,000 but some can cost as much as $16mn. Most occur when birds hit windscreens or fly into engines. The economic toll of bird strikes has been estimated at as much as $400mn a year in the US to $1.2bn worldwide.

With so many different types of aircraft using different fuels and additives, human error is a real risk and mis-fueling of aircraft claims are also increasing. Mistakes by ground crews can result in costly engine damage and repairs and lengthy groundings when fuel systems have to be replaced, but can also have catastrophic consequences, potentially causing jet engines to shut down in flight.

More turbulence on the way – turbulence is experienced every day on flights around the world. Extreme turbulence can cause structural damage to aircraft, which can cost millions of dollars while flight path and altitude changes to avoid turbulence are estimated to cost US airlines in excess of $100mn a year. In future, turbulence is expected to increase due to climate change with the North Atlantic flight passageway anticipated to see the greatest increase. This passageway is the route many international flights use to travel between North America and Europe with around 3,000 flights crossing the Atlantic on a single day. Turbulence is often unexpected. Pilots must be properly trained on how to handle it.

The rapid growth of drones – the commercial market in the US alone is expected to triple in size in the next five years – is one of the biggest issues impacting the aviation industry. Drones bring benefits to the air transportation system, such as the ability to undertake aerial surveys of terminal buildings, provide 3D maps of runways in order to identify maintenance work and the ability to quickly detect foreign objects at airports, thereby offering security support. However, as the number of drones increases, so do the risks. The number of aircraft near-misses with drones and other incidents of reckless behavior in or around airports are soaring. Safety reports involving drones in the US grew from zero in February 2014 to over 250 in June 2017 while the number of times a drone endangered the safety of an aircraft in UK airspace rose by more than a third in 2018 alone to 125. Even a small drone could cause as much as $10mn in physical damage alone if hitting an engine of an airplane. In the event of an incident, aircrafts could also be forced to make an emergency landing, resulting in delay or cancellation and significant economic loss. Drones have become safer as technology has improved. However, regulation continues to lag behind innovation.

Cyber risks such as hacker attacks, systems outages and data breaches rank as the major concern for aviation sector respondents in the Allianz Risk Barometer 2019, which surveys risk management experts around the world, just ahead of the closely related risk of business interruption (BI). With its reliance on IT systems for booking, ticketing and flight operations, the airline industry is particularly vulnerable to BI events, either from a malicious attack, human error or technical fault. According to the US Government Accountability Office, 34 IT outages affected 11 US airlines between 2015 and 2017 alone, 29 of which disrupted or cancelled flights. While awareness of cyber risk has increased, especially among aviation manufacturers, cyber risk management sophistication differs widely in the sector.

While accidents-in-flight continue to become less frequent, accidents-on-the-ground remain problematic – an issue that could exacerbate in future. In many cases, airport infrastructure has not kept pace with the rapid growth in passenger and aircraft numbers and it is anticipated that the vast majority of the world’s busiest airports will likely see infrastructure-related capacity issues within 10 years. Many are already dealing with weekly infrastructure-related delays. Ground congestion is not only cause for concern on the basis of delays, but also for safety as well. It has been estimated that ramp accidents can cost airlines as much as $10bn a year in direct and indirect costs. With more aircraft on the ground, crowded servicing areas and aprons are resulting in an increase in the number of collision incidents. Analysis of more than 500 loss events at 14 German airports by AGCS shows that damage to vehicles on the tarmac is a leading cause of insured losses. More than half of these events were due to collisions with pushback tractors, baggage trolleys, aerial work platforms or washing systems. Communication is an integral part of ramp guidance and ineffective communication can be at the heart of many ground accidents.