Aviation underwriters are facing a troubling paradox: while the number of losses has remained relatively stable, the cost of resolving those claims is rising sharply – and the reasons are rooted far beyond the hangar.
According to Steven Godfrey (pictured), head of aviation at HDI Global SE Canada, a combination of global supply chain strain, labour shortages, and prolonged soft market conditions is transforming even routine claims into major financial exposures.
“The cost of and availability of parts is driving claims inflation right now,” Godfrey said, pointing to widespread supply disruptions that continue to affect aviation maintenance. Compounding the issue is a shortage of skilled professionals – both pilots and aircraft maintenance engineers (AMEs). That scarcity drives up labour costs and extends repair timelines.
Where once an aircraft could be grounded for a few weeks awaiting a part, it may now sit idle for months – not because of the scale of the damage, but because the part simply can’t be sourced.
These delays are particularly problematic when the policy includes coverage for a replacement aircraft. “If an aircraft is sitting on the ground for six months waiting for repairs, and we are paying for replacement aircraft for six months…” Godfrey said, the total payout can quickly escalate. Limits for this coverage have also risen in recent years, a trend he ties to the soft market.
The current soft market in aviation insurance is enabling what Godfrey refers to as “coverage creep” – the gradual broadening of policy terms, limits, and enhancements that can quietly transform the financial impact of even routine claims. While these additions are often well-intentioned, they also come with long-term consequences for insurers trying to maintain sustainable portfolios.
“In a soft market, brokers are under pressure to deliver more perceived value to their clients,” Godfrey said. “They are extracting additional coverages, and underwriters, in an effort to maintain their positions on desirable risks, are probably inclined to granting these.” Over time, enhancements that were once considered optional or premium features have become standard inclusions, even on relatively modest risks.
Some policies now include coverage for sudden and accidental pollution, which protects against unexpected environmental damage – a costly but rarely triggered exposure for most general aviation operators.
Others incorporate betterment coverage, where the insurer pays not just to repair damaged parts but to replace them with newer or upgraded components, potentially increasing the value of the aircraft beyond its pre-loss state. Expanded limits for replacement aircraft rental expenses have also become common, designed to help operators maintain service during downtime but prone to being stretched by modern supply chain delays.
This last feature, Godfrey noted, can significantly inflate a claim. If an aircraft is grounded for months due to a part shortage and the policy includes a high replacement rental limit, the total payout can far exceed the actual repair cost. For example, a helicopter experiencing a main rotor strike might require $100,000 in repairs. But if replacement blades are unavailable and the aircraft remains grounded for six months, and if the policy includes up to $500,000 or even $1 million in rental aircraft reimbursement, the total claim could reach five or six times the cost of the damage itself. In that situation, insurers are not just covering the technical repair – they are effectively funding the operational continuity of the business during prolonged downtime.
Coverage creep is difficult to reverse once embedded in policy wordings. Many of the expanded endorsements and limits added during the soft market have not been re-evaluated in light of today’s challenges, where claims inflation and longer repair timelines are becoming the norm. According to Godfrey, this is where underwriters will likely start drawing firmer lines.
He said, “As we see opportunity on a loss-active account, to begin to maybe pull some of that back – that's obviously going to be where you'd want to start.” For insurers, that means reining in coverage limits, reassessing whether add-ons reflect actual risk exposure, and tightening the language to ensure long-term viability.
Godfrey emphasized that underwriters aren’t seeing a spike in frequency of incidents – the problem is severity, inflated by external factors and generous coverage structures that may no longer be sustainable. “It’s now becoming a question of the inflation of the cost of repairs,” he said.
Despite this, adjusting rate or restricting coverage remains difficult due to ongoing market competition. Still, insurers are beginning to scrutinize claims performance more closely, especially on loss-active accounts.
“We’re constantly looking at: are we maintaining a sustainable rate given the losses that we are experiencing?” he said. The answer, increasingly, may require a recalibration of both pricing and coverage – particularly if conditions don’t stabilize.
