IN SEARCH OF NEW HORIZONS
You know the rates are low when it costs more to insure your car than it does your plane. Granted, South Africa’s roads are more dangerous than its skies, but aviation insurance margins are nonetheless under tremendous pressure. However, with James Godden at the helm of a team of 12, Santam Aviation is holding on to its piece of sky.
“The rates are unsustainable, but I said that two years ago and they have fallen further since then. This is despite the fact that there are more claims now than there were in the past,” says Godden. He began his career as an aviation broker with a BA ( LLB). A weak Rand makes repairs more expensive, while fierce competition and an oversupply of capacity keeps rates low. “Unless there is a catastrophic event to absorb a large amount of this capacity and place reinsurers under pressure, or a large player exits the market, the situation is not set to change anytime soon,” he adds. When a plane carrying wealthy and wellconnected Americans flew into Mount Kenya in 2003, killing all 14 people on board, Santam Aviation was hit with a R40 million liability claim. Fortunately, it was eventually settled at R2 million under the Warsaw Convention, which regulates liability for international air carriage, but the incident demonstrated why human error accounts for 99 per cent of all aviation accidents. The aircraft missed clearing the mountain by just seven metres, due to poor visibility. “I think the industry is at a cross roads and some sense is needed on rates. With already thinner margins in aviation, we need more premium in the market,” Godden continues. The majority of aircraft in South Africa is insured, which means the pie is unlikely to expand a great deal. Moving to insure large carriers, like South African Airways, would mean a more expensive reinsurance programme and a change in business model. So where to from here? With 25 per cent market share, Santam Aviation will battle to find growth in South Africa. “The money is in Africa. Nigeria, for instance, has one of the largest private jet collections in the world, due in some part to its enormous film industry,” says Godden, who adds that he will be cautious in the manner risks are approached in Africa. Interestingly, some international brokers are looking to place business with South African insurers, due to its competitive rates, which opens up further opportunity. Also on the horizon is the potential introduction of drones in South Africa. As unmanned aerial vehicles, some drones can fly as high as aeroplanes. “These will likely soon be introduced into the South African market. Companies like Eskom could use them to survey power lines, while the Parks Board could use them to monitor poachers,” Godden explains. “We are looking at developing a product for this equipment, but it depends how quickly they are adopted here and who utilises them.” Change is inevitable, but some things will stay the same for Santam Aviation, like its commitment to paying claims. “We don’t look for reasons to repudiate claims. I could probably count the number of claims we have repudiated in my time here on two hands,” says Godden, whose team engages with the Civil Aviation Authority around pilot training and air safety. Coupled with its commitment to train independent brokers on aviation risk, Santam Aviation will continue playing a part in keeping the industry well above ground.