South African aviation insurance industry well positioned to service African market

Any consideration of the potential of the South African aviation insurance market should take into account the realities and risks of African aviation, the underdeveloped nature of the African aviation market, and the relatively favourable positioning of the South African aviation insurance industry to place and cover African risk.

The South African aviation insurance market

There are six major aviation insurers in South Africa and a large pool of well connected aviation brokers able to insure aircraft and fleets across the globe. As such, South African brokers offer owners of aircraft and airlines access to established local insurers as well as international insurers both in the London and other developed markets.

Traditionally all six of the major aviation insurers, through approximately 15 brokers, provide very similar products, all, in essence, selling the same cover to the South African market.

In the past “this has often been very confusing for clients” says Alison Penderis, Senior Aviation Broker, Alexander Forbes Risk Services.

More recently, however, South African insurers have elected to provide cover to brokers in the South African market on a first come first serve basis. This means that each insurer’s offering is only provided to one broker, with other brokers only being able to provide the same terms if they are able to provide insurers with a brokers’ letter of appointment.

This has “tidied up the market and made purchasing aviation insurance much easier for the buyer in the South African market” adds Penderis.

It has, however, introduced an element of complexity in that the broker or the buyer of the cover now needs to understand the types of risk that different underwriters specialise in.

As such, “it is imperative that the broker or buyer of the cover has a full understanding of the risk in question as well as a good relationship with the relevant underwriter if they are to negotiate the best cover and premium for the client” says Penderis.

The African aviation insurance market

In sharp contrast to South Africa, there are very few insurers capable of placing aviation risk locally in the rest of Africa. While local African aviation cover does exist it is of limited capacity, is pricey and is not always guaranteed to deliver if called upon.

Since a large portion of aviation insurance is US dollar based and as most African economies are poorly supplied with foreign currency, the capacity for local African insurers to underwrite aviation risk is limited. Usually local African underwriters can only write a small portion of the US dollar-based risk, say 5 to 20 percent, with the balance being insured either in the South African or global markets.

Since the South African aviation insurance market is able to cover the full range of risks faced in Africa at competitive terms “Africa certainly represents a growth opportunity for the somewhat saturated South African aviation market” says Penderis.

That said, while placing African aviation cover abroad is certainly possible, it remains expensive due to the larger risks involved in flying, operating and maintaining a plane in Africa. “This is especially the case if planes are underwritten on a plane-by-plane, as opposed to a fleet, basis” says Penderis.

While placing African aviation risk is generally more expensive, risk in Namibia, Botswana, Lesotho, Zimbabwe, Swaziland and Mozambique is treated the same by South African insurers as local South African aviation risk. This means that aviation risk in South Africa’s neighbouring countries can be placed at South Africa’s relatively cheaper domestic rates, another advantage for the local market in the region.

That said aviation risk in counties like Sudan, Libya, Democratic Republic of Congo and Egypt remains difficult to place in conventional insurance markets due to war and ongoing civil unrest. Furthermore, aviation risk in countries like the Democratic Republic of Congo and Kenya are also extremely difficult and expensive to place abroad due to the hazardous operating conditions of the former and the high accident rate of the latter.

Despite these blanket generalisations the trick in Africa, no matter how difficult the country, is to “understand the specifics of the risk on a case by case basis” says Penderis.

Truly understanding the different conditions and circumstances that aircraft operate in enables an accurate identification of the risks that each aircraft faces on a case by case basis. This ensures that “only the risks that each individual aircraft is facing are covered and the costs of covering aircraft in Africa are kept to a minimum” concludes Penderis.