Insurance giant spreads its wings with aviation book acquisition

To maintain its dominant position in the domestic insurance market Santam cannot neglect the many specialist lines covers it offers. The decision to snap up Regent’s aviation book was motivated in part by the severe shortage of qualified aviation underwriters in the South African market.

"The rationale behind acquiring the Regent aviation book was firstly to strengthen our footprint in this market and secondly to snap up a book of business that we believe will improve Santam’s bottom line going forward,” says Quinten Matthew, head of specialist lines at Santam. The group also considered the potential for "spin off” business from the newly acquired client base.

Santam dominates the domestic market for corporate, commercial and personal lines insurance and is a market leader in certain of its niche insurance categories too. It was the country’s largest aviation insurer prior to acquiring Regent’s aviation book – a transaction that will result in Santam’s aviation book almost doubling in size!

Aviation insurance is a niche business and although the bulk of Santam’s book comprises smaller privately owned aircraft and charter operators, it also has a number of large aircraft such as Boeing 737s and small business jets on its books.

There are some striking similarities between the businesses of underwriting aircraft versus underwriting motor vehicles. The basic components of each insurance policy are similar and include an asset, passenger and third party liability. But there are a number of factors specific to aviation insurance…

The average aeroplane sum insured is multiples of the average motor car value, for example. And motorists do not have to file a flight plan! "If you do not have the requisite understanding of aviation specific requirements you could leave a number of holes in the insured’s policy,” adds Mathew.

As a minimum you should deal through a specialist aviation broker – or a general broker with a very good understanding of the aviation product – when insuring an aircraft. An aviation broker, for example, would be qualified to advise a charter operated aircraft owner on the necessary liability covers as required by South African legislation, over and above the assets risks cover.

Insurers and underwriters need an intimate knowledge of the aviation landscape, which exhibits claims cycles not dissimilar to other segments in the short-term insurance space. "In about 2008 South African aviation was under the spotlight due to the large number of incidents and accidents reported,” says Matthew.

Industry stakeholders made a concerted effort to improve matters as evidenced by better claims statistics in the following years. But this improvement appears short-lived. Over the past 12 months there has been a noticeable increase in the number of aviation accidents. Measures are being taken by the Civil Aviation Authority and various industry bodies to rectify this.

The number of accidents is not the only problem. "From an insurer’s perspective, the last four years have brought significant – between 40% and 50% – a reductions in rates, with the result aviation underwriting margins are extremely tight,” notes Matthew.

Although aviation insurance is a standalone product there are ways for clients to achieve better rates by combining this cover with other business risks. Matthew explains: "Echelon, one of Santam’s Underwriting Managers, has the capacity to offer all inclusive product coverage which could be more competitive as far as an overall premium on a client’s portfolio is concerned.”

There will not be significant changes to existing Regent aviation policyholders following the transaction. "In terms of the takeover the broker’s responsibility is to treat the renewal as a normal renewal,” concludes Mathew. "They should canvas the market and get all available quotes to secure the most attractive rates for their clients – Santam will honour the Regent no claim bonuses on renewal.”