Cécile Coune: Aviation industry to quadruple by 2050
Aviation insurance company Aviabel is targeting the Middle East and Asia-Pacific to capitalise on huge growth in air traffic
In 2014, 3.3 billion people flew. By 2050, it’s expected 16 billion people will fly every year: double the earth’s current population. That’s a lot of passengers, a lot of risk, and a lot of insurance needed to cover it. Cécile Coune, CEO of aviation insurance company Aviabel, discusses the latest safety and reinsurance trends in air travel, and points towards the key growth areas in the industry.
European CEO: The rigours of flying have been in the news recently; here to discuss the wider trends impacting the way we travel: Cécile Coune.
Now I know that air transport has of course grown all over the world; tell me, how has the aviation insurance industry been able to meet that demand?
Cécile Coune: Well it’s true: if I can give you some figures, it is expected that by the year 2050, 16 billion people will need to be flown yearly. That’s about twice as much as the world population today. And in comparison, it’s a 384 percent increase compared to the 3.3 billion people expected to be flown in 2014. And that compares in turn to only 160 million in 1960.
So, this gives you an idea of the level of liabilities and the level of insurance amounts that are needed to cover this increased traffic of passengers, and also the increased traffic of goods.
For example, the largest civil aircraft at present – the Airbus 380 – is capable of transporting up to 853 passengers, depending on the configuration. So that means you need – and it’s not rare to see – insurance coverage in the amount of several hundred million US dollars.
So insurers and reinsurers have pulled together the financial capacities to respond to this increasing traffic of passengers and freight.
European CEO: So we’ve talked about the abundance of interest in air travel, so, of course there are safety protocols that are also important, and come into play in these cases. Tell me about some of those protocols as they relate to air traffic controllers, for instance?
Cécile Coune: Yes: in recent years, it’s true that safety has improved greatly, and the number of fatalities have reduced, on average.
On one side, you have an improvement of the safety equipment and technology. That is an important factor for air traffic control, for example. And it helps avoid air collisions.
At the same time, pilots have much more actual and accurate data at their fingertips. For example, weather data. That’s also very helpful to avoid air collisions.
You have also an important increase, not only in the safety equipment, but also in the safety culture. The standard of pilot training has improved greatly, and the level of detail of protocols, of safety, and of aircraft inspections, have also much improved compared to the past situation.
So all this improvement in safety means that problems are detected much earlier, and they can be dealt with before they become a bigger issue.
European CEO: Okay; so let’s talk specifically about pilot errors. Have these safety upgrades gone far enough to address them?
Cécile Coune: Yes: in fact, it can be stated that the improvement of safety has reduced air accidents, and therefore insurance claims.
It can also be noted, however, that this varies greatly by region. And that’s often related to the level of industrialisation of the country. Africa for example, has the poorest records: comparable to the state of safety and security 50 years ago in Europe and in North America.
But even in developing countries where modern equipment and modern aircraft are in use, you can see that the level of training and the awareness around safety is much less than in other parts of the world.
We at Aviabel have chosen a risk-by-risk approach, because some operators – even in countries with a bad safety record – can have adopted the best safety records as the best in class. And therefore they are very good risks to insure still.
European CEO: So now let’s transition from talking about specific to wider changes. MIFID is being implemented and will be changing the aviation industry over the long term; tell me, what are the key takeaways for your sector?
Cécile Coune: Well, MIFID (the Markets in Financial Instruments Directive) will only be implemented in the insurance sector in general in Europe by the end of 2015. But Belgium is a step ahead, and has implemented MIFID in their national law as from April 2014.
So that means that in Belgium at present, all insurance companies, including Aviabel, are subject to the MIFID regulation. That means detailed requirements in respect of the structuring of the compliance and risk management internal audit functions, for example; the management of conflicts of interest; and for the customer, the requirements regarding the whole sales process: information, marketing communication, appropriateness and suitability tests, for example.
The overarching principle of the MIFID regulation is to act fairly and professionally; not to be misleading your customers. And in that sense, these are values which have lived at Aviabel already for 80 years, since it was founded. And therefore, in this way, for us at Aviabel, MIFID is not going to change much.
European CEO: What markets are the ones that you’re watching, and others in the aviation sector should really be keeping an eye on, in terms of growth prospects over the long term?
Cécile Coune: The International Air Transport Association – IATA – forecast a 31 percent increase in the number of passengers in the period 2012-17. They see that this growth is going to be mostly in emerging economies in the Middle East and Asia-Pacific; followed by Africa and by Latin America.
In Europe there has been a growth of close to two percent in the traffic of passengers in 2013, so that’s still significant even in Europe.
European CEO: Absolutely; so you’ve obviously been able to corner the European aviation insurance sector; are you looking to expand into some of those other markets that we’ve just been talking about?
Cécile Coune: Definitely, yes: Aviabel is active really on a worldwide basis, and we do that through our reinsurance activities. So we have in fact anticipated growth in the areas where the most growth in general aviation in particular is going to be.
We have already established partnerships in reinsurance with a number of players locally in these companies; for example we have reinsurance partnerships in place in Mexico, in Turkey, and in Singapore. And we are exploring at present new opportunities in the Middle East, and in the rest of Latin America.