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Airline Insurance Costs Decline as Lower Crash Rates Pare Claims

Airlines will benefit from lower insurance costs after claims declined for a third year running as reduced accident rates and increased competition among insurers keep premiums down.

Claims dropped 20 percent last year to $924 million as premiums fell 11 percent to $1.61 billion, insurance broker Aon Risk Solutions said in a report today. “For an industry with remarkably inflexible cost-base, insurers certainly played their part in contributing significant percentage cost savings in 2012,” it said.

Airlines in recent years have seen a steady drop in crashes using western-built planes, the most common types among major carriers. The accident rate fell to 0.20 accidents per million sectors from 0.37 a year earlier, according to International Air Transport Association data which had no hull losses among members last year.

“The outlook for airline insurance purchase in 2013 is very positive,” said Simon Knechtli, chairman of Aon’s aviation unit. “It will take a series of losses, or one very large loss in 2013 to create a change in current market trends.”

More insurers have entered the market, showing the drop in premiums hasn’t reduced the appetite to work with airlines, he said.

Ample supply has had a spillover effect in related markets, lowering insurance costs for general aviation and the aerospace industry, Knechtli said in an interview.

“Certain capital investment vehicles are looking to place their money in the financial markets and insurance would appear to be providing an attractive level of return,” Knechtli said. “You have got some startup insurers in aviation and there are one or two other entities thinking about joining the market.”

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