aviaition insurance

AVIATION INSURANCE

The customer is the most important

visitor in our premises.

He is not dependent on us. We depend

on him.

He does not disturb our work. He is the

purpose of it.

He is not a stranger in our business. He

is a part of it.

We do not do him a favour when we

serve him.

He does us a favour by giving us an

opportunity to do it.

-- Mahatma

Gandhi

V.E.S. COLLEGE OF ARTS, SCIENCE & COMMERCE 1

AVIATION INSURANCE

INTRODUCTION TO SERVICE SECTOR


AVIATION INSURANCE

The service sector accounts for more than half of

India's GDP: 51.16 percent in 1998-99. This sector

has gained at the expense of both the agricultural

and industrial sectors through the 1990s. The rise

in the service sector's share in GDP marks a

structural shift in the Indian economy and takes it

closer to the fundamentals of a developed economy

(in the developed economies, the industrial and

service sectors contribute a major share in GDP

while agriculture accounts for a relatively lower

share).

The service sector's share has grown from 43.69

per cent in 1990-91 to 51.16 per cent in 1998-99. In

contrast, the industrial sector's share in GDP has

declined from 25.38 per cent to 22.01 per cent in

1990-91 and 1998-99 respectively. The agricultural

sector's share has fallen from 30.93 per cent to

26.83 per cent in the respective years.


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Some economists caution that if the service sector

bypasses the industrial sector, economic growth

can be distorted. They say that service sector

growth must be supported by proportionate growth

of the industrial sector; otherwise the service

sector grown will not be sustainable

Within the services sector, the share of trade,

hotels and restaurants increased from 12.52 per

cent in 1990-91 to 15.68 per cent in 1998-99. The

share of transport, storage and communications

has grown from 5.26 per cent to 7.61 per cent in

the years under reference. The share of

construction has remained nearly the same during

the period while that of financing, insurance, real

estate and business services has risen from 10.22

per cent to 11.44 per cent. The fact that the service

sector now accounts for more than half the GDP

probably marks a watershed in the evolution of the

Indian economy.


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Customer satisfaction predominates the success of

an enterprise. In the service industry where

intangibles are marketed, the importance of

customer satisfaction is all the more significant.

Service is said to be the sharpest edge of marketing

strategy. Sales and service are the two important

wings of service industry like LIC, ITI and the post

office. If one of the wings turns weak the

organization cannot rise because the weaker wing

will hamper its flight. Hence the emphasis should

not be concentrated only on the sales but on

service aspects too. Besides a supportive role in

promoting sales effort, servicing influences the

institutional image. Prompt and effective service

boosts the morale of the sales force to present a

bold form and hold their prospects. Service

encompasses the service rendered to clients

before, during, and after sales. A few examples of

services are the Hotel industry, Airline industry,

Insurance industry, Transportation industry, etc.

INSURANCE:


AVIATION INSURANCE

Insurance may be described as a social device to

reduce or eliminate risk of loss to life and property.

Under the plan of insurance, a large number of

people associate themselves by sharing risks

attached to individuals. The risks, which can be

insured against, include fire, the perils of sea,

death and accidents and burglary. Any risk

contingent upon these, may be insured against at a

premium commensurate with the risk involved.

Thus collective bearing of risk is insurance.

α Definitions

General Definition

In the words of John Magee, “Insurance is a plan by

themselves which large number of people associate

and transfer to the shoulders of all, risks that

attach to individuals.”

Fundamental Definition

In the words of D.S. Hansell, “Insurance

accumulated contributions of all parties

participating in the scheme.”

Contractual Definition


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In the words of justice Tindall, “Insurance is a

contract in which a sum of money is paid to the

assured as consideration of insurer’s incurring the

risk of paying a large sum upon a given

contingency.”


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α Characteristics of Insurance

Sharing of risks

Cooperative device

Evaluation of risk

Payment on happening of a special event

The amount of payment depends on the nature

of losses incurred.

The success of insurance business depends on

the large number of people insured against

similar risk.

Insurance is a plan, which spreads the risk and

losses of few people among a large number of

people.

The insurance is a plan in which the insured

transfers his risk on the insurer.

Insurance is a legal contract which is based

upon certain principles of insurance which

includes utmost good faith, insurable interest,

contribution, indemnity, causes proxima,

subrogation, etc.


AVIATION INSURANCE

The scope of insurance is much wider and

extensive.

α Origin and Development of Insurance

Insurance in the modern form originated in the

Mediterranean during 13/14th century. The earliest

references to insurance have been found in Babylonia, the

Greeks and the Romans. The use of insurance appeared in

the account of North Italian merchant banks who then

dominated the international trade in Europe at that time.

Marine insurance is the oldest form of insurance followed

by life insurance and fire insurance. The patterns that

have been used in England followed in other countries also

in these kinds of insurance. The origin and growth of


AVIATION INSURANCE

Marine Insurance, life Insurance, Fire Insurance and

miscellaneous insurance are given below:

1. Marine Insurance

The oldest and the earliest records of marine policy relates

to a Mediterranean voyage in 1347. In the year 1400, a

book written by a merchant of Florence, indicates

premium rates charged for the shipments by sea from

London to Pisa. Marine Insurance spread from Italy to

trading routes in other countries of Europe.

Marine Insurance in India

There is evidence that marine insurance was practiced in

India some three thousand years ago. In earlier days

travelers by sea and land were exposed to risk of losing

their vessels and merchandise because of piracy on the

open seas. Moreland has maintained that the practice of

insurance was quite common during the rule of Akbar to

Aurangzeb, but the nature and coverage of insurance in

this period is not well known. It was the British, insurers

who introduced general insurance in India, in its modern

form. The Britishers opened general insurance in India

around the year 1700. The first company, known as the

Sun Insurance Office Ltd. was set up in Calcutta in the

year 1710. This followed by several insurance companies

of different parts of the world, in the field of marine


AVIATION INSURANCE

insurance. In 1972, the government of India nationalized

the general insurance business by forming GIC.

2. Life Insurance

The early developments of life insurance were closely

linked with that of marine insurance. The first insurers of

life were the marine insurance underwriters who started

issuing life insurance policies on the life of master and

crew of the ship, and the merchants. The early insurance

contracts took the nature of policies for a short period

only. The underwriters issued annuities and pension for a

fixed period or for life to provide relief to widows on the

death of their husbands. The first life insurance policy was

issued on 18th June 1583, on the life of William Gibbons for

a period of 12 months.

Life Insurance in India

The British companies started life insurance business in

India, by issuing policies exclusively on the lives of

European soldiers and civilians. They sometimes issued

policies on the lives of Indian’s by charging extra. Different

insurance companies like Bombay Insurance Company

LTD. (1793) and Oriental Life Assurance Company (1818)

was formed to issue life assurance policies in India.

Gradually, the first Indian Company named as Bombay

Mutual Life Insurance Society Ltd. was formed in


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Dec. 1870. By 1971, the total numbers of companies

working in India were 15, out of which 7 were Indian and

the remaining were British companies.

After several changes have been made for the period from

1930 to 1938, the Government of India passed Insurance

Act, 1938. The act still applies to all kinds of insurance

business by instituting necessary amendments from time

to time.

2. Fire Insurance

Fire insurance has its origin in Germany where it was

introduced in municipalities for providing compensation to

owners of the property, in return for an annual

contribution, based on the rent of those premises. The fire

insurance in its present form started after the most

disastrous fire in human history known as the 'Great Fire'

in London, which had destroyed several buildings. It drew

the attention of the public and the first fire insurance

commercially transacted in 1667. The Industrial

Revolution (1720-1850) gave much impetus to fire

insurance. The Nineteenth century marked the

development of fire insurance.

Fire Insurance in India

In India, fire insurance was started during the British

regime. The oldest of these companies include the Sun

Insurance Office, Calcutta (1710), London Assurance and


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Royal Exchange Assurance (1720), Phoenix Assurance

Company (1782), etc.

3. Miscellaneous Insurance

Due to the increasing demands of the time, different forms

of insurance have been developed. Industrial Revolution of

19th century had facilitated the development of accidental

insurance, theft and dacoit, fidelity insurance, etc. In 20th

century, many types of social insurance started operating,

viz., unemployment insurance, crop insurance, cattle

insurance, etc. This way the business of insurance

developed simultaneously with human and social

development. Today, the use of computers in the field of

insurance is frequently increasing. Insurance becomes an

inseparable part of human development. Miscellaneous

insurance are of many types like:

Personal Accident Insurance: protection for loss from

injuries or loss of life.

Travel Accident Insurance : covering loss of life or

injury arising during level

Unnamed Driver and Passenger Insurance

Health Insurance

All-risks Insurance

Consequential Loss Insurance

General Public Liability Insurance

Burglary Insurance

Golf Insurance


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Money Insurance

Fidelity Guarantee Insurance

Workmen Compensation Insurance

Contractual Liability Insurance

But for my project I have taken the topic of AVIATION

INSURANCE which is again a type of miscellaneous

insurance, concentrating on each and every aspect of

aviation insurance and how it has affected the service

sector in recent times. Aviation is the most expensive

industry means of transport today.

This sector gained importance and created awareness

after the 9/11 attack on the twin towers of America. After

this attack lot of changes took place in the aviation sector

and also lot of amendments were made by the law to

regulate the aviation insurance contracts. So let us see

what these changes are and how aviation insurance forms

one of the important part of any country’s insurance

sector.


AVIATION INSURANCE

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α History

Aviation Insurance was first introduced in the early years

of the 20th Century. The first aviation insurance policy

was written by Lloyd's of London in 1911. The company

stopped writing aviation policies in 1912 after bad weather

and the resulting crashes at an air meet caused losses on

many of those first policies. It is believed that the first

aviation polices were underwritten by the marine

insurance Underwriting community.

In 1929 the Warsaw convention was signed. The

convention was an agreement to establish terms,

conditions and limitations of liability for carriage by air,


http://en.wikipedia.org/wiki/Warsaw_convention

http://en.wikipedia.org/wiki/Underwriting

http://en.wikipedia.org/wiki/Aviation

AVIATION INSURANCE

this was the first recognition of the airline industry as we

know it today.

By 1933 realising that there should be a specialist industry

sector the International Union of Marine Insurance (IUMI)

set up an aviation committee, and by 1934 eight European

aviation insurance companies and pools were formally

established and the International Union of Aviation

Insurers (IUAI) was born.

The London insurance market is still the largest single

centre for aviation insurance. The market is made up of

the traditional Lloyds of London syndicates and

numerous other traditional insurance markets. Throughout

the rest of the world there are national markets

established in various countries, this is dependent on the

aviation activity within each country, the US has a large

percentage of the world's general aviation fleet and has a

large established market.

No single insurer has the resources to retain a risk the size

of a major airline, or even a substantial proportion of such

a risk. The Catastrophic nature of aviation insurance can

be measured in the number of losses that have cost

insurers hundreds of millions of dollars (Aviation

accidents and incidents).

Most airlines arrange "fleet policies" to cover all aircraft

they own or operate.


http://en.wikipedia.org/wiki/Aviation_accidents_and_incidents

http://en.wikipedia.org/wiki/Aviation_accidents_and_incidents

http://en.wikipedia.org/wiki/Lloyds_of_London

AVIATION INSURANCE

α The Risks

Hull "All Risks"

The hull "All Risks" policy will usually refer to something

like "all risks of physical loss or damage to the aircraft

from any cause except as hereinafter excluded".

Airline hull "All Risks" policies are subject to a standard

level of deductible (that is an uninsured amount borne by

the Insured) applicable in the event of partial (non-total)

loss. Currently, this deductible can range from $50,000 in

respect of a Twin Otter to $1,000,000 in respect of a wide-

bodied jet aircraft, such as a Boeing 747.

Deductibles too can be reduced by means of a separate

"Deductible Insurance" policy. The Deductible Insurance

Policy is effected to reduce the large "All Risks" policy

deductibles to a more manageable level. For example the

US$1,000,000 applicable to a Boeing 747 can be reduced

to say US$100,000.


AVIATION INSURANCE

The term "all risks" can be misleading. "All risks of

physical loss or damage" does not include loss of use,

delay, or consequential loss. "Grounding" is a good

example of consequential loss. Some years ago when

there had been a couple of accidents involving DC10

Aircraft, the Civil Aviation Authorities throughout the world

imposed a "grounding order" on that type of aircraft.

That order in effect said until certain things had been

established and checked out those aircraft could not fly.

The operators of those aircraft were unable to fly them

and as a consequence of that they "lost" the use of them.

But the aircraft were not "lost" - it was known precisely

where they were but they could not be used to carry

passengers. Such an eventuality would not be covered by

an "all risks" policy because in such circumstances there is

no PHYSICAL loss or damage.

What the policy will cover is the reinstatement of the

aircraft to its "pre-loss" condition, if repairable damage is

involved, or some other form of settlement in the event

that more substantial damage is sustained. Exactly what

form of settlement will depend on the policy conditions.

Today, the vast majority of airline hull "all risks" policies

are arranged on an "Agreed Value Basis". This provides

that the Insurers agree with the Insured, for the policy

period, the value of the aircraft and as such, in the event


AVIATION INSURANCE

of total loss, this Agreed Value is payable in full. Under an

Agreed Value policy the replacement option is deleted.

α Exclusions

Wear, tear and gradual deterioration - in common

with most non-marine policies these perils are

thought to be a trading expense and not a peril to be

insured.

Ingestion damage - caused by stones, grit, dust,

sand, ice, etc., which result in progressive engine

deterioration is also regarded as "wear and tear and

gradual deterioration", and as such is excluded.

Ingestion damage caused by a single recorded

incident (such as ingestion of a flock of birds) where

the engine or engines concerned have to shut down

is not regarded as wear and tear and is covered

subject to the applicable policy deductible.


AVIATION INSURANCE

Mechanical Breakdown - likewise is thought by

aviation insurers to be an operating expense, but

subsequent damage outside the unit concerned is

usually covered. However, it is possible to obtain

insurance coverage against mechanical breakdown of

engines by way of a separate policy. This coverage

has a high degree of exposure and as a result is

relatively expensive. The majority of airlines do not

purchase it probably viewing such exposure as a part

of the "engineering" budget.

Spares

First of all we must identify what we mean by a "spare" or

perhaps - "when is a spare not a spare" to which a simple

answer is "when it is attached". Under most "Hull" policies

the word "Aircraft" means Hulls, machinery, instruments

and the entire equipment of the aircraft (including parts

removed but not replaced). Once a part is replaced it is no

longer, from an insurance viewpoint, part of the aircraft.

Conversely once a spare part is attached to an aircraft as

a part of that aircraft (not in the hold as cargo or on the

wing as an extra pod) it is no longer a "spare".


AVIATION INSURANCE

If the equipment is insured on the hull "All Risks" policy

the automatic transfer of coverage from "aircraft" to

"spare" and vice versa is automatically accomplished.

Having established when a spare is a spare how is it

insured as such? Usually in one of two ways. Either under

a "spares" section of a hull policy or by a separate Spares

Policy. In either case the scope of coverage will probably

be similar. All Risks whilst on the Ground and in Transit for

a limit of [so much] any one item or sending or any one

location. War Risks can also be covered (in respect of

transits), Strikes, Riots, Civil Commotions can be covered

in accordance with standard market clauses. Spares

coverage is usually subject to a small deductible except,

however, in respect of ground running of spare engines

when the appropriate Ingestion deductible will be applied.

Spares are normally covered on an agreed value basis -

usually their replacement cost (be it new or reconditioned

- as is required).

Spares installed on any aircraft are not covered by the

Spares Insurance. They become, from an insurance

standpoint, a part of the aircraft upon which they are

installed and a part of the Agreed Value for which it is

insured. This becomes particularly important if the parts

are loaned to another airline.


AVIATION INSURANCE

Hull War Risks

The hull "All Risks" policy will contain the exclusion of

"War and Allied Perils". Generally speaking, throughout

the aviation insurance world, "War and Allied Perils" have

a defined meaning. In the London Aviation Insurance

Market the standard exclusion is called the War, Hi-jacking

and Other Perils Exclusion Clause (currently known by its

reference - AVN48B for short) this lists and defines these

so-called war and allied perils.


AVIATION INSURANCE

War Definition :

War - this includes civil war and war where there

is no formal declaration.

The detonation of a weapon of war employing

nuclear fission or fusion.

Strikes, riots, civil commotions and labour

disturbances.

Political or terrorist acts.

Malicious or sabotage acts.

Confiscation, nationalization, requisition and the

like by any government.

Hi-jacking or any unlawful seizure or exercise of

control of the aircraft or crew in flight.

The exclusion also applies to any loss or damage occurring

whilst the aircraft is outside the control of the operator by

reason of any of these "war" perils.

The majority of the excluded "War and Allied Perils", other

than the detonation of a nuclear weapon and a war

between the Great Powers (the aviation insurance world

identifies these as the U.S.A., the Russian Federation,

China, France and the UK), can normally be covered by

way of a separate "War and Allied Perils" policy. Aircraft

deductibles are not normally applied in respect of losses

arising out of "War and Allied Perils".V.E.S. COLLEGE OF ARTS, SCIENCE & COMMERCE 23

AVIATION INSURANCE

Other exclusions insurers will usually apply are, as

follows:-

Confiscation etc. by the "state" of registration (this

exclusion can often be deleted in respect of financial

interests - albeit, in some instances at an additional

premium charge)

Any debt, failure to provide bond or security or any

other financial cause under court order or otherwise;

The repossession or attempted repossession of the

Aircraft either by any title holder or arising out of any

contractual agreement to which any Insured

protected under the policy may be party;

Delay and loss of use. (Although there is often an

extension to the policy for a limited amount for extra

expenses necessarily incurred following confiscation

or hijacking).

The aircraft hull "War and Allied Perils" policy will cover

the aircraft on an "Agreed Value" basis against physical

loss or damage to the aircraft occasioned by any of these

perils. This statement is made carefully and deliberately in

order to highlight the essential difference from a "Political

Risks" Insurance.

Liability Insurance

Liability can be divided basically into two categories:


AVIATION INSURANCE

Liability in respect of Passengers, Baggage, Cargo

and Mail carried on the aircraft. These liabilities result

from the operations the airline is set up to perform

and are normally the subject of a contract of carriage

like a ticket or airway bill, which provides some

possibility of limiting the airline's liability.

Aircraft Third Party Liability - the liability for damage

done to property or people outside the aircraft itself.

Every airline will arrange liability insurance for these two

categories, normally in a single liability policy. In many

countries there are requirements laid down imposing

minimum limits of liability that are a prerequisite to

obtaining an operator's licence. Elsewhere limits are

specified for an aircraft to be allowed to land. The size of

limit required is often related to the size of the aircraft

concerned (and its potential for causing damage). A small

aircraft operating only in remote regions and using small

airstrips incurs considerably less potential exposure than

an aircraft flying into and out of major airports.

α General Liabilities


AVIATION INSURANCE

The other category of liability covers premises,

hangarkeepers and products liability and is called "Airline

General Third Party" - being the liability for damage done

to property or people arising from other than the use of

aircraft. Many airlines cover their "Airline General Third

Party Liability" within their main liability program.

It is called "Airline General Third Party Liability" these days

since the insurers took steps specifically to exclude all non

aviation activities (for example hotel ownership or

management) from "Aviation" Policies a few years ago.

Basically for a risk to be considered as "Airline General

Third Party Liability" it must arise from what are described

as "aviation occurrences" being those involving aircraft or

parts relating thereto, or arising at airport locations or

arising at other locations in connection with the airline's

business or transporting passengers/cargo or arising out of

the sale of goods or services to others involved in the air

transport industry.

This means that there is a definitive language detailing

what is considered as "aviation exposure" such that any

other (non-aviation) exposure is excluded.

Most policies are placed on a Combined Single Limit Basis.

This means Bodily Injury and Property Damage combined.

In the past, personal injury was included but now this has

been separated. It should be mentioned, however, that

these days the term "bodily injury", in addition to bodily

injury, sickness and death resulting at any time, will


AVIATION INSURANCE

include shock and mental anguish. "Personal Injury" on the

other hand is defined as "offences against the person",

such as false arrest, malicious prosecution, invasion, libel

or slander and the like.

In respect of Personal Injury the full policy limit, whatever

that may be, is not available and is usually limited to

US$25,000,000 any one offence and in the annual

aggregate.

What is excluded from a liability insurance are such things

as:-

Damage to the Insured's own property. (It is after all

a third party liability policy).

War and Allied Risks although these are "written

back" by a device called "The Extended Coverage

Endorsement - AVN 52".

Radioactive Contamination.

Noise and Pollution - unless caused by or resulting in

a crash, fire, explosion or recorded "in flight"

emergency.

Both the Aircraft and General Liability policies usually

includes the "war and allied perils" exposure by way of a

"write back" and will probably provide for such things as

search and rescue expenses, first aid and other

humanitarian expenses and also defence costs.


AVIATION INSURANCE

Hull Total Loss Only Cover

This is similar to Hull All Risks cover given above but will

respond only to total losses of aircraft, whether actual,

constructive or arranged. This is particularly given for old

aircraft since the old aircraft are heavily depreciated and

insured for low sums and premium on such low sums

would result in low premium, which would be inadequate

for the partial losses. The ratio of partial losses to total

losses in such old aircraft is distorted.


AVIATION INSURANCE

BUYING AVIATION INSURANCE

CONTRACT:

As with many specialized service or commodity

purchasing, the use of an experienced intermediary or

middleman is usually prudent for the transaction process.

Although this middleman may not be required in all facets

or industries for successful purchases, in the Aviation

Insurance Industry, with only one exception, it is required.

The middleman we are discussing is often referred to as a


AVIATION INSURANCE

Broker; it is quite frankly the only way to accomplish this

need. All the Aviation Insurance companies or groups

require the use of a Broker to secure insurance on behalf

of the consumer. So what is this Aviation Insurance Broker

we need to utilize and access most of the companies

providing insurance?

Well, the term broker refers to an independent insurance

person who is licensed by the State to represent and work

for the consumer in the insurance purchasing and service

process. Unlike an insurance agent who represents an

insurance company and represents that insurance

company’s interest, a broker is independent of the

insurance company and represents the needs and interest

of the client. This independence allows the broker the

freedom and opportunity to deal with multiple aviation

insurance companies and is considered to be working the

client. The broker’s compensation is paid by a percentage

of premiums, which comes from the consumer. This

commission structure keeps the broker’s attention to

represent the best interest of the client/consumer and

places a responsibility that the broker provides a

continuous service and handling of the insurance needs or

requirements.

α SELECTION OF A BROKER:

The selection process of a broker should be more involving

for the consumer, than which insurance company to buy V.E.S. COLLEGE OF ARTS, SCIENCE & COMMERCE 30

AVIATION INSURANCE

the coverage from. That is a process consumer and the

broker decide upon. The selection of a broker should take

several considerations, such as the experience the broker

has in the consumers segment of aviation or operation,

the infra-structure or team support behind the broker to

achieve the demands of technical service and document

handling, the market relationship and credibility with

underwriters (the insurance company), and the overall

reputation in the aviation community.

Just as an extensive interview process in conducted to

select an employee for a company, so should the hiring

process involve searching for, and selecting the aviation

insurance broker. This can be conducted by an interview

process where the broker sells themselves and the

organization they represent as well as a check upon their

credentials with a client list of references. Once this

process is complete and the consumer feels comfortable

with the selection, the long-term relationship the

consumer develops with his broker will provide the

consumer years of professional service.

If, however, the client believes his choice was not good or

the broker service does not meet his expectations for a

variety of reasons, the client can always change the

broker as in the original selection process by writing a

"Broker of Record" letter which is provided to the current

insurance company. This letter will replace or fire the

current broker with the client’s new selection, which is

based on his criteria and not that of any insurance V.E.S. COLLEGE OF ARTS, SCIENCE & COMMERCE 31

AVIATION INSURANCE

company. Whatever the process by which the client select

or remove the broker representation is controlled by the

client.

α WHAT DOES YOUR BROKER DO FOR YOU?

Understanding the broker’s job should help the client

during the selection process. The broker will gather the

"underwriting" information on the clients "risk", the

aircraft or operation, and submit this information to the

insurance company. This gathering of information can be

as simple as a one-page application for small risk such as

private aircraft usage or as complex as booklets of

information for large commercial operations. In any event

it is important that the broker knows what information to

secure, how to present it and understands completely its

context. That’s because the next important part of the

broker’s responsibility to the client is to negotiate the best

combination of coverage and price for client’s risk. This

can only be achieved with a broker’s level of

understanding of clients’ risk, their experience in this

area, and for larger risk having a support mechanism the

underwriter can relate to. It is in this process the broker’s

skill is utilized to create the competition between

insurance companies to obtain best industry prices at the

current time.


AVIATION INSURANCE

Once the broker has negotiated the clients insurance

program, they will continue to advise the client from the

purchasing process through the coverage issues that may

arise during the policy period, usually one year. This

expertise in service can deal with changes in your policy

during its term to the most important reason the client

bought the policy in the first place and that is handling a

claim should one occur during the policy term. This service

process from the client broker may not involve just one

person, but multiples of support personnel depending on

the size and complexity of your risk. As stated earlier, this

is why the selection process is important and should

involve understanding the structure of the entire

brokerage firm for which to represent the client.

WHAT TO GIVE YOUR INSURANCE BROKER:

AIRCRAFT

INFORMATION

Report year, make, model and

acquisition value, plus tail and

serial numbers and information

about passenger and crew seating.

BASE INFORMATION Give details about home airport,

hanger space and ground handling.

CONTRACTS Supply drafts of usage, ownership

and storage agreements.

LIABILITY LIMITS & Report average passenger load and


AVIATION INSURANCE

PROVISIONS profile and review insurance

provisions, deductibles and war—

risk perils.

MAINTENANCE DETAILS Explain whether you’ll outsource it,

use an in-house mechanic or do a

little of both.

MISSION INFORMATION Detailed purpose of use, territory of

operations and anticipated annual

hours of operations.

PILOT HISTORY FORMS Submit signed forms (which are

obtainable from your broker) for all

pilots.

In today’s changing and evolving aviation insurance

market it is important for the consumer, to understand the

responsibility of the broker and how best they can to

serve. The broker works for the consumer/client and as

the consumers want to hire the best pilot or mechanic, so

do they want to hire the best broker. This is a profession

where skill and experience is the best resource for the

overall success in the client’s insurance program.


AVIATION INSURANCE

RENEWING AVIATION INSURANCE

If you're like most owners and pilots, you simply renew

your aviation insurance policy every year. If it was good

enough last year it will be good enough this year. Then

you probably don't give it another thought until next year.

And this pattern often repeats itself for many years.

There are two very big problems with this scenario. First,

things change. Your aircraft, where you fly, who you fly

with, how much you fly…many of these things can change

over the years, and they should be reflected in your

policy. Second, and even more serious, it is quite possible

that your policy wasn't the right one for you to begin with!

In that situation, you are simply renewing your mistake

year after year. In either case, your aviation insurance

policy deserves a little bit of your time once a year. Here

are the five things you should do to make sure you are

adequately protected.

1. Choose your broker


AVIATION INSURANCE

When you insure your home or your business, a broker can

choose from dozens and dozens of insurance companies.

As a result, shopping around with a few brokers can make

sense. Chances are, they may not even approach the

same companies for your quote.

In the case of aviation insurance, however, there are only

four or five companies in Canada to choose from and even

fewer that specialize in light aircraft. Obviously, it doesn't

matter how many brokers you go to, the odds are that

they will be approaching the very same companies on your

behalf. This can actually be a serious disadvantage for you,

as some companies will simply refuse to quote in these

circumstances in order to avoid the feeding frenzy that can

result when a number of brokers vie for the same account.

So, as you can see, choosing your broker is the first step.

But how do you choose? And are there any alternatives to

a broker?

Let's look at alternatives first. The only alternatives to a

broker are the direct sellers and special programs. In these

cases you are dealing with a salesperson who can only


AVIATION INSURANCE

offer you the one product they represent. As a result,

these options tend to be promoted on the basis of cheap

rates—but like “bargains” anywhere, they do so by cutting

coverage and often leaving you seriously underinsured. If

you really want to know what they can offer you, check

them out. But before you make your decision; be sure to

talk to a broker who works for you and not any one

company.

So how do you choose the right broker? Start by finding an

aviation specialist. Although any general insurance broker

can sell you aviation insurance, they simply do not have

the experience or familiarity with the field to be your best

choice. Even more importantly, they usually can't get you

the best rates.

If the insured is an aviation specialist, he may deal with

the companies and underwriters every single day. He gets

to know them personally and may place a lot of business

with them. Now compare that to the average general

insurance broker who maybe places one or two policies a

year with that company. Who do you think will get you the

better results? Finally, make sure that you are comfortable

with the broker you choose. Just because someone special

in aviation insurance doesn't automatically mean they are

good. Do they take the time to ask you questions, get to

know your needs, and fully explain things to you in a way

you can understand?? If they do—congratulations, you've

found your broker!


AVIATION INSURANCE

They will probably ask you to sign a “Letter of Brokerage”

which will let insurance companies know that you have in

fact appointed them to be your broker. Then you can move

on to the other four steps below.

2. Confirm the value of your aircraft

Neglecting to keep up with the market value of your

aircraft is one of the most common renewal mistakes. If

you do this year after year, you could be in for a rude

awakening. Aircraft values have soared in recent years,

with many doubling in price over the last decade.

Unlike home or auto insurance, aviation insurance is a

“stated value” policy. That means that the owner is

responsible for declaring the value of the insured aircraft.

If you undervalue your plane, you risk losing it after even a V.E.S. COLLEGE OF ARTS, SCIENCE & COMMERCE 38

AVIATION INSURANCE

minor accident. As I have explained many times in this

column, the “stated value” is the maximum the insurance

company will pay out —and they will keep the plane as

salvage.

So whether you have simply neglected to increase the

value on your policy at renewal time or have tried to save

a few bucks on the premium by insuring for a lower

amount you are taking a very big gamble. Make sure you

resolve this issue at your next renewal.

3. Review your liability

Make sure your policy doesn't have passenger or family

member restrictions. This is the most common way that

companies offer “bargain” policies. It is also the most

common way owners lose everything they own when

courts award large injury settlements that are not covered

by their “bargain” policy. I regularly see people with limits

of only $100,000 per person. You'd never consider such a

low amount for your home or auto insurance, so why allow

it on your aviation policy? With the high court settlements

being awarded today, one to two million dollars should be

the least you consider.


AVIATION INSURANCE

4. Get the right coverage for your needs

At every renewal, you should discuss your flying habits

with your broker. Many companies have territorial

restrictions to the and some have restrictions for dirt or

grass landing strips. Make sure your policy covers the kind

of flying you do.

If you have made—or are planning to make—any upgrades

or changes to the configuration of your aircraft, you may

need to make some adjustments to your policy. Otherwise,

you may find yourself out of luck in case of an accident.

5. Protect your interests

Finally, you should discuss any other unusual

circumstances regarding your aircraft. You may need to


AVIATION INSURANCE

arrange for special coverage to protect your interests.

One common example I run into is an owner who has his

aircraft on lease to a flying school or commercial operator.

If the lessee commits an illegal act or omission, your

aviation policy could be nullified. In these situations, you

should obtain “Breach of Warranty” coverage which will

pay a lien holder's interest despite the policy being

otherwise invalidated.

Following these simple steps once a year at renewal time

is an easy way to make sure that your aviation insurance

policy continues to protect you. So don't take the easy way

out…don't just say “renew it as is for another year.”


AVIATION INSURANCE

AVIATION INSURANCE IN INDIA: TAKE OFF STAGE

The unbridled growth in the aviation sector has come as a

bonanza for the insurance sector. Thanks to capacity

addition and the entry of new aviation players, a host of

insurance companies are eyeing this growing market to

offer insurance cover to new planes that are being brought

to India.

‘‘The aviation insurance market is looking up and is

currently at Rs 350 crore. But with new aircraft being

bought by new players entering the business and the

existing one on an expansion mode, the aviation market is

set to take off,’’ said Bajaj Allianz General Insurance’s

Head-Underwriting K. Krishnamoorthy. With the entry of

several low cost airlines along with fleet expansions by

existing ones and increasing corporate aircraft ownership,


AVIATION INSURANCE

the Indian aviation insurance market is all set to take off in

a big way.

Industry trackers believe that with several airlines

including IndiGo, East West Airlines and Magic Air set to

enter the market in the coming weeks, the airline

premium income could be up 50 per cent in the next two

years.

Though India’s contribution to the total global insurance

premium paid by airlines which stands at US $ 5.86 billion

is miniscule, the growth in aviation premium payout is

highest in China followed by India, experts say. Airline

insurance which is typically offered to passengers, cargo

airlines or company or individually-owned aircraft

generally consists of coverage to the aircraft and liability

to passengers.

Before the boom in the Indian aviation sector, the airline

insurance market was dominated by the four state-owned

general insurance companies: New India Assurance

Company, Oriental Insurance Company, National

Insurance Company and United India. However, with the

growth in the Indian aviation story, private players like

ICICI Lombard, Bajaj Allianz, Iffco Tokyo General Insurance

and Reliance General Insurance Company are also trying

to muscle their way into this lucrative sector.

The unprecedented growth in this sector is also seeing

private players join hands with each other to bid for


AVIATION INSURANCE

accounts. The latest such case is the ICICI Lombard-Bajaj

Allianz tie-up where they are jointly bidding for Air India’s

insurance account which includes providing cover for 50

planes valued over $3 billion.

Currently, a consortium of public sector insurance

companies including New India Assurance, Oriental Fire

and General Insurance and United Fire and General

Insurance handle Air India’s account for which the airline is

paying an annual premium of close to US $ 14 million.

Aviation insurance business is a high severity loss

business and in the future you could see a lot of Indian

insurance companies joining hands to manage airline

accounts.

Experts say that the role of an reinsurer — generally

foreign insurance companies — is also bound to increase

in the future. Indian insurance companies do not have the

financial muscle to address claims of airlines and generally

go in for reinsurance which means sharing the risk of loss

with another insurance company.

The role of an reinsurer is important in the Indian context

as most of the companies do not have the requisite

experience of handling a market of this size. The reinsurer

helps in providing the technical expertise, capacity to

underwrite the business and their ability to handle such

large risks,” the official said.


AVIATION INSURANCE

Estimated to be in the region of Rs.3.5 billion, aviation

insurance premium business is growing at a fast clip. At

present the government-owned four non-life insurers are

the major players in this segment as they cover public

sector airlines like Air India and Indian.

Out of the eight private players, Bajaj Allianz General

Insurance Company and ICICI Lombard General Insurance

Company Limited are most active in this segment.

The Pune-based Bajaj Allianz is co-insurer for Kingfisher

Airlines, Go Air, Indigo Air among the scheduled airlines

and has also insured aircrafts owned by corporates like

the Bajaj Auto consortium, Force Motors, Ranbaxy group,

Shamanur Sugar group and Orient Flight School. ICICI

Lombard has insured around 75 aircrafts.

Aviation insurance is offered to scheduled airlines

(passenger or cargo airlines) and non-scheduled airlines

(company or individual-owned aircrafts) and also crafts

owned by flying clubs.

The basic coverage offered is to the hull of the aircraft,

liability to passengers and third party and also can include

personal accident cover to the crew members.

Normally the types of insurance covers available are:

Aircraft owners / operators

Aircraft hull policy - covering loss of or damage to

aircraft

Aircraft liability policy V.E.S. COLLEGE OF ARTS, SCIENCE & COMMERCE 45

AVIATION INSURANCE

Liability of aircraft owner/ operator in respect

of accidental bodily injury or property damage.

Liability towards passengers both in respect of

accidental bodily injury and also towards loss

or damage to baggage and personal

belongings of passengers.

Aviation war and allied perils

Aviation product's liability

Airport operator's liability

Aviation service provider's liability

The policy covering aircraft hull insurance is usually on an

agreed value basis. In the event of a total loss the stated

amount can be paid as agreed and the option to replace

the aircraft can be avoided. This frequently occurs

because of development of newer and faster types of

aircraft or due to purchase of an aircraft on mortgage.

The insurers base their rating on variables like: aircraft

age, type of aircraft i.e. fixed wing or rotor, geographical

area of flying operations, maintenance facilities, past

experience, experience of the pilots, claims experience of

the fleet and the carrier, the number of passengers, etc.

Normally the premium would depend on the aircraft and

its size besides operations. However it would vary from 1

to 2.5 per cent of the aircraft value. Interestingly the

aviation insurance premium is highly reinsurance-driven

as the value of risk covered is so huge that the primary

insurers do not want to shoulder on their own. For


AVIATION INSURANCE

instance Oriental Insurance Company Limited retained just

Rs.60 million out of the Rs1.5 billion aviation premium

earned last fiscal.

In terms of loss experience the domestic aviation business

is quite profitable with very few claims - except for a few

improper landing and bird hit damages - registered in the

recent past.

Meanwhile, players also feel that airlines can also benefit

from this growth in the market as growing competition

could mean lower premiums. ‘‘The Indian aviation industry

has had a few good years with no major losses reported

and hence the players can have the benefit of reduction in

premiums for good records. This would encourage clients

to go for higher covers or optimize it,’’ Krishnamoorthy

says.

CURRENT SCENARIO OF AVIATION INSURANCE:


AVIATION INSURANCE

The magic of multiplier effect is now working for the

aviation ancillary industry. Reaping the benefits of the

aviation boom is not only maintenance, repairs & overhaul

(MRO) operations but also the insurance sector. In fact,

the spiraling growth in the aviation sector has given an

upshot to the insurance segment.

As per an airline risk management survey - commissioned

by international magazine Airline Business and global

airline insurance broker Aon - airlines are spending no less

than $8.36 bn a year on risk management, with around

70%, or $5.86 bn, spent on insurance premiums. Aviation

premiums are, on an average, growing by 15.5% post-

9/11, the survey reports. It further states that while the

industry's loss record has been respectable in the last four

years, traffic and passenger numbers have risen

significantly, increasing the exposure to risk.

In India, a majority of the private players, including Bajaj

Allianz, ICICI Lombard, Reliance and the four public sector

general insurance companies - Oriental, New India

Assurance, United India, National Insurance - offer aviation

insurance in the market.

Although there are no official estimates, industry players

put a ballpark figure of the Indian aviation insurance

market at somewhere around Rs 400 cr to Rs 500 cr.

"With new aircraft being bought by new players entering

the sky and the existing one in expansion mode, this


AVIATION INSURANCE

segment will only grow," says T A Ramalingam, head,

underwriting, Bajaj Allianz.

Bajaj Allianz is one of the most active players in the

market and a co-insurer with Kingfisher Airlines, Go Air,

Indigo Air and Air India among the scheduled airlines and

also insured aircraft owned by India companies such as

Bajaj Auto consortium, Force Motors, Ranbaxy group,

Shamanur Sugar group, Orient Flight school, Asia Aviation,

a part of the BILT group, Mundra Port and SEZ Ltd, an

Adani group company.

In India, this segment is highly reinsurance-driven. A

majority of the players have re-insured the value of risk

covered with foreign companies. Take the case of Air India

where almost 90% of the risk is insured overseas through

reinsurance arrangements, while the remaining cover

rests domestically.

According to Ernst & Young, a global consultancy firm,

Indian skies would have over 700 aircraft - from 235

currently - by 2012, an increase of almost 200%. The

numbers speak for the potential of this segment in the

market, which is one of the fastest growing in the world.

"Predictions for aircraft deliveries to meet the increasing

demand for air travel, particularly in Asia, mean that some

4,000 new airliners are on order, with this region at 1,242

leading the way. Growth in purchasing power of


AVIATION INSURANCE

passengers and entry of low cost airlines has driven the

upward movement of the airline industry both in terms of

equipment and staff and opening new opportunities for

this niche segment," believes Kartik Jain, head, marketing

and e-channel, ICICI Lombard. The company has insured

more than 75 aircraft till date.

The shot in the arm for this industry has further come

from the fact that aircraft are becoming bigger in size with

large seating capacity. This, in turn, increases the risk for

insurers, sometimes even catastrophic. With the

emergence of bigger aircraft such as Airbus A 380 and

Boeing 777 Dream liners, the values of the aircraft as well

as the liability are slated to increase tremendously. The

severity of each loss is also expected to go up

proportionately. Currently, at least 10-15 re-insurers

participate in an airline insurance programme. However,

with the introduction of larger aircraft, the number of re-

insurers participating would increase to 25.

The total premium figures for aviation insurance in India

for 2006-07 stood at Rs 417.29 cr. Reliance, which does

not hold a major share in the airline business till now, is

counting on its experience of handling major risks

pertaining to energy/ off-shore risks/ package policies of

large clients and strong network of international

underwriters. "National reinsurer, GIC, leads our

reinsurance treaties. V.E.S. COLLEGE OF ARTS, SCIENCE & COMMERCE 50

AVIATION INSURANCE

As reinsurance support is essential in getting competitive

quote in aviation insurance, we aim to increase our share

considerably in this financial year," says K A

Somasekharan, CEO, Reliance General Insurance.

Typically, the premium depends upon underwriting factors

such as age of the aircraft, experiences of the pilot flying

the aircraft, make and model and use of the aircraft. It is

generally 1% to 3% of the aircraft value.

On the profitability part, Oriental Insurance chairman-cum-

managing director M Ramadoss says that the domestic

aviation business is enjoying the benefits of a softening

market with claim ratio being very low. Save for a few

cases such as improper landing or bird hit damages, there

are not many claims made in the recent past. The

company's client includes Jet Airways, Paramount Airways,

and Air India, among others.

Industrialists, however, does not anticipate terror risks

pushing up the aviation insurance costs. This space is very

price competitive. The number of players in the market

are increasing, which has led to insurance rates steadily

coming down in spite of recent air crashes in the world.


AVIATION INSURANCE

MAJOR PLAYERS OF AVIATION INSURANCE

IN INDIA


AVIATION INSURANCE

KINGFISHER AIRLINES


AVIATION INSURANCE

Kingfisher Airlines is India`s first and only private airline to

receive the prestigious, `Best New Airline of the Year`

award in the Asia-Pacific and Middle East region from

Centre for Asia Pacific Aviation (CAPA). Kingfisher Airlines

has also been voted as the 3rd Most Successful Brand

Launch of the Year 2005, in the annual Brand Derby

Survey conducted by India’s leading business daily-

Business Standard. In another Survey conducted by

agencyfaqs.com and Brand Reporter, Kingfisher was voted

as the 7th Buzziest Brand of 2005 amongst 2000 leading

national and international brands. More recently,

Kingfisher Airlines has bagged the “Service Excellence for

a New Airline” award from Skytrax, a UK based specialist

global air transport advisor.

The latest addition to the list of laurels is the “Best New

Domestic Airline for Excellent Services and Cuisine” award

from Pacific Area Travel Writers Association (PATWA), the

biggest travel writers’ organization, representing members

from 70 countries across the globe, that conducts

independent annual surveys across various industries

related with Travel and Tourism in order to select the best

in each category. Kingfisher Airlines commenced V.E.S. COLLEGE OF ARTS, SCIENCE & COMMERCE 54

AVIATION INSURANCE

operations on May 9th, 2005 with a brand new fleet of

aircraft.

Kingfisher Airlines offers Full Service at True Value and

promises an unparalleled experience to the Indian air

traveler. On offer are extra-wide seats and spacious leg

room, delicious gourmet meals, international-class cabin

crew and a whole host of comforts and delights. Kingfisher

Airlines also facilitates doorstep delivery of tickets on

guest request.

Kingfisher Airlines has further raised the bar by

introducing the Indian business traveller to a premium

product- Kingfisher First, the finest experience in the

Indian skies.


AVIATION INSURANCE

FLEET DETAILS

TYPE OF AIRCRAFT IN SERVICE IMAGES

A330 5

A 321(Dual

cabin)

6

A 321(Single

cabin)

2

A 320 (Dual

cabin)

10

A 320 (Single 16


http://www.flykingfisher.com/about-us/our-fleet.aspx




AVIATION INSURANCE

cabin)

A 319 3

ATR 72-500 27

ATR 42-500 6 NA

TOTAL 75

Kingfisher Airlines currently operates a fleet of 75 aircraft,

which includes 10 A 320 (Dual cabin) aircraft, 16 A 320

(Single cabin) aircraft, 27 classic and next generation ATR

72-500 aircraft and 6 A 321(Dual cabin) aircraft, 5 A330

aircraft, 2 A 321(Single cabin) aircraft, 3 A 319 aircraft and

6 ATR 42-500 aircraft. With an average fleet age of 4.48

years, the airline has one of the youngest aircraft fleet in

the world.





AVIATION INSURANCE

Kingfisher airlines currently operates over 254 flights

daily.

AVIATION INSURANCE OF KINGFISHER

AIRLINES (PRIMARY DATA)

Two private sector general insurance companies, ICICI

Lombard General Insurance and Bajaj Allianz General

Insurance, have bagged the insurance account of Vijay

Mallya’s Kingfisher Airlines.

This is for the first time that the private sector general

insurance companies have made major inroads into the

aviation sector, which has mainly been the forte of the

public sector insurers.

Both ICICI Lombard and Bajaj General Insurance will share

the Kingfisher Airlines account in a 75:25 ratio. After a

“beauty parade” by the public sector and private general

insurance companies, the account was awarded to the two

private sector general insurance companies last week.

ICICI Bank, one of the promoters of ICICI Lomabrd, has


AVIATION INSURANCE

also financed the aircraft acquisition plans of the

Kingfisher Airlines. The insurance deal will be executed the

moment Kingfisher Airlines acquires its fleet of aircraft.

Kingfisher will be the first private carrier to be launched

with an all-new fleet. The airline has signed an agreement

with Airbus Industrie of France for the purchase of three

brand new Airbus A319 aircraft. With this new purchase,

Kingfisher Airlines, which will launch its operations on May

7, has ordered a total of 33 brand new aircraft. Of these, a

total of 13 aircraft — 10 A320s and 3 A319s — are on firm

order, with options for buying a further 20 aircraft.

AIR INDIA

Air India is India's finest flying Ambassador. The urge to

excel and the enthusiasm, which characterised Air India's

first flight, way back on October 15, 1932, is quintessential

even today - thanks to Air Indians who have kept alive the

tradition of flying high.


AVIATION INSURANCE

The recent merger of Air India and Indian, the country's

leader in the domestic sector, has helped the airline to

emerge as a major force in the airline industry. The re-

branding exercise is currently underway and passengers

are getting to see the unified face of the new invigorated

Air India. The merged entity, which presently has a fleet of

148 aircraft offers passengers seamless travel across

domestic and international routes.

FLEET DETAILS

Aircraft Type Owned Leased Total

B777 10 4 14

B747 3 3 6

A310 0 9 9

A319 9 5 14

A321 10 0 10

A320 30 18 48

A330 0 2 2

B737-800 13 7 20

ATR 0 7 7

CRJ 700 0 3 3

B737-800 5 0 5


AVIATION INSURANCE

B737 Freighters 6 0 6

A310 Freighters 4 0 4

TOTAL 90 58 148

Aircraft on order include eight B777-200LRs, fifteen B777-

300ERs, twenty seven B787 Dreamliners, eighteen B737-

800s, nineteen A319s, twenty A321s and four A320s. Of

the 111 aircraft ordered, twenty three Boeing (five B777-

200LRs, five B777-300ERs, thirteen B737- 800s) and

nineteen Airbus (ten A321s and nine A319s) have been in

the fleet so far.

AVIATION INSURANCE OF AIR INDIA

(Primary data)

New India Assurance Company participated in the

Aviation Insurance of Air India way back in 1946. New

India Assurance Company provides professional aviation


AVIATION INSURANCE

insurance advice and solutions to the needs of small

aircraft operators as well as scheduled airlines.

The aviation portfolio of New India Assurance Company

encompasses following type of covers.

Hull All Risk Insurance Policy: This policy is

suitable for small aircraft operators belonging to

flying clubs, companies engaged in agricultural

spraying operations, aircrafts especially designed for

VVIPs, business executives and for those engaged in

industrial aids. The policy scope includes all physical

loss or damage sustained by the insured aircraft

including total loss, disappearance. All losses are

paid subject to deductibles.

Spares All Risk Insurance Policy: Covers loss or

damage to spares, tools, equipments and supplies

owned by the insured or the property for which the

insured is responsible whilst on ground or in transit

by land, sea, air including in own aircraft or whilst on

the premises of others for storage only.

Hull/Spares War Risk Insurance: Indemnity is

provided to the aircraft as well as spares caused by

war, invasion, acts of foreign enemies, hostilities,

civil war, rebellion, revolution, resurrection, martial

law, strikes, riots, civil commotion, malicious acts,

sabotage.


AVIATION INSURANCE

Hull Deductible Insurance: Airlines at times have

to bear a proportion of loss due to application of a

deductible under All Risk Policy, which may impose

considerable financial difficulty on the insured.

Therefore the operators insure part of their

deductibles under this kind of insurance.

Aviation Personal Accident (crew member)

Insurance: This cover is designed to cover insured

person against injury, disablement or death arising as

result of an accident that is generally granted on

annual basis. The cover operates while mounting or

dismounting from and whilst traveling an aircraft

while the aircraft is being used within the

geographical scope as per its permitted usage. This

cover can also be on 24 hours basis. The capital sum

insured varies according to the status of the insured

or earning capacity and fixed by the insurers.

Loss of License Insurance: Operating crews of the

aircraft are required to have valid license. License is

liable to be suspended either temporarily or

permanently on medical grounds. Consequential

financial loss is covered by the loss of license policy.

Cover provided is in respect of incapacity causing

permanent total disablement or temporary total

disablement due to bodily injury or illness.


AVIATION INSURANCE

Besides the aforesaid general aviation policies New India

Assurance Company also provides various other tailor-

made insurance as per specific requirements of the

insured.

α Claims: In case of claims following are illustrative

documents that are generally called for from the

insured.

Documents in connection with aircraft details

Documents in connection with flight details

Documents in connection with the accident

Certificate of airworthiness/registration

Crew details

Maintenance & engineering information

Operational manual passenger documentation in

case of claims


AVIATION INSURANCE

EFFECTS OF 9/11 ATTACK ON

AVIATION INSURANCE

Following the September 11th attack in the United States,

the subject of aviation insurance attracted much attention

in the media and elsewhere after aviation insurers

worldwide withdrew cover for the specific acts of war and

terrorism. As a result, many national governments

stepped in to provide temporary insurance cover to ensure

that airlines continued flying.

Short to medium term solutions

At the request of the airline industry the International Civil

Aviation Organisation established a special group on war

risk insurance (“SGWI”) which, as a short and medium

term measure recommended the setting up of an

international mechanism funded by insurance premiums

to provide noncancellable third-party aviation war risk V.E.S. COLLEGE OF ARTS, SCIENCE & COMMERCE 65

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coverage through a non-profit special purpose insurance

entity (GLOBALTIME) with multilateral government backing

for the initial years. As a long-term solution the SGWI

recommended that an international convention be

developed which would limit the third-party liability of the

aviation industry for losses arising from war, hijacking and

allied perils.

Uncertainty ahead?

Some four years on from 9/11, most governments have

withdrawn guarantees for hull and liability war cover to

airlines and airport service providers. Notable exceptions

include the United States, China and Singapore. The

market has now responded with certain insurers offering

major airlines limited noncancellable third party coverage.

Enthusiasm for GLOBALTIME has waned and a new

convention on damage caused to third parties on the

ground has yet to be agreed. In Asia at least, the airline

industry has experienced a dramatic turnaround in

fortunes with renewed prosperity. However, as with other

classes of catastrophe business, there remain underlying

uncertainties in the aviation insurance market that could

dramatically change the environment. One of those

uncertainties is the prospect of a catastrophic event

caused by dirty bombs, bio-chemical and electromagnetic

devices or weapons of mass destruction (“WMD”). The

fear is that the use of a “dirty bomb” at a major

international airport could not only lead to immediate


AVIATION INSURANCE

multiple aircraft, passenger and third party losses, but

also long term contamination of sites preventing access

and the uncontrolled spread of diseases.

Convention and statutory limits

The Montreal Convention 1999, which governs the liability

of airlines in relation to passengers and cargo interests,

requires airlines to obtain adequate insurance to cover

their liabilities under the Convention. In addition, airlines

are required by many states to have minimum insurance

limits to cover such liabilities including third party surface

damage.

After the September 11, 2001, terrorist attacks on the

United States, the insurance costs for commercial airlines

and college aviation programs rose sharply. The prevailing

assumption is that increased aviation insurance costs are

the result of an increased risk of life and property loss

from additional terrorist attacks. This paper questions the

assumption and posits that the September 11, 2001,

attacks were a catalyst for and not the cause of increased

insurance costs. Two alternative explanations for the

increased costs are offered. First, after September 11th,

insurance managers became aware that they had not

been making the incremental rate increases necessary to

maintain acceptable profit margins. Second, sharp

declines in the value of the insurance company stock


AVIATION INSURANCE

portfolios eroded profits. Increases in aviation insurance

cost will be compared to increases in other types of

insurance, such as medical insurance, to determine if the

rate of increase in aviation insurance cost is significantly

higher than in other sectors of the economy. The impact of

these insurance rate increases on domestic and

international air transportation and commerce is

presented.

Future of Aviation Insurance:


AVIATION INSURANCE

As the industry enters into the millennium, the insurance

industry must look at several problems that also face the

aviation industry. Survival for the small FBO’s is getting

harder each day; the threat of financial devastation is real

when it comes to lawsuits. General aviation may be forced

to change its way of doing business and become more like

the military and commercial airlines. One can only hope

that society will change their attitude towards the aviation

industry and the litigation that surrounds the industry. We

all hope for a positive future for the community.

Insurance and the Future of Aviation the aviation industry,

as it is known today, has grown into a set of definable

industries. Modern aircraft range from military to

commercial airlines to the most diverse group, general

aviation. Aviation has come a long way the last 100 years.

The industry is still developing. With growth comes

problems that must be solved before the industry can go

to the next level.


AVIATION INSURANCE

As the industry enters into the millennium, the insurance

industry must look at several problems that face the

aviation industry. Legal concerns, in many cases, they’re

influenced by our society. The court system plays a big

part by their decisions that are passed down. It’s rare

when an aviation case goes to court, because insurance

agencies know they’ll lose when the jury hears the case.

It’s just too easy to prove pilot negligence; most aviation

accidents result from pilot error. Also, when they do go to

court, they very seldom mount a defense due to the

unreasonable verdicts, and ridiculous awards. These

practices has forced aircraft owners to stay away from

new policies and let their insurance coverage lapse.

Aircraft owners pay three to five times the amount for

adequate liability coverage than their counter parts

elsewhere in the world. Survival for the small business

operators is getting harder each day due to the General

Aviation Revitalization Act (GARA); the threat of financial

devastation is real when it comes to lawsuits. The (GARA)

defects lawsuits from manufacturers to aviation service

providers.

FBOs’ insurance rates are skyrocketing because of this,

which contributes to the cycle by causing higher repair

cost. Many small business operators really don’t want to

take the chance and can’t afford the rising cost that’s

associated with liability insurance. As of February 2000 at

least three aviation insurance under writers ceased writing


AVIATION INSURANCE

coverage for the small business operators, saying it’s a

major risk. One of the main reasons is the cost to the

underwriters. Aviation insurance companies have paid out

a dollar and quarter for every dollar they’ve taking in, for

each of the last several years. No wonder so many are

closing down, merging, or getting out of the historically

riskier aviation activities, General aviation may be forced

to change its way of doing business and become more like

the military and commercial airlines. Maintenance

problems may be identified by computers, and then

repaired by the manufacturers. The industry is coping with

the mounting cost associated with liability insurance.

“Remove and replace maintenance” is the attitude the

industry must lean towards. The manufacturers would set

up new factory service centers and repair facilities for the

general aviation customers. This system wouldn’t help the

rising cost of insurance, but maintenance and ground

liabilities would rest on the shoulders of the manufacture.

The market itself is shrinking, we’ve had a generation of

pilots from WWII, Korea, and Vietnam that was introduced

to aviation and trained at the government’s expense.

Because of modern technology, we’ll never again have the

numbers that we once had. The ageing fleet and pilots

can’t help the situation that the industry is facing; the

average aircraft age is 15 to 20 years, and the post Indian

pilot is now 50 to 60 years of age. The underwriters are

very worried about the age of both the pilots and the

aircraft. V.E.S. COLLEGE OF ARTS, SCIENCE & COMMERCE 71

AVIATION INSURANCE

During a telephone interview with Darrel Hyde of CS&A

Insurance, he stated; “Aircraft hull and liability insurance

for the senior pilot has become such a concern that the

insurance industry should develop a special task force to

help deal with this problem. The need to extend the

insurable age of the senior pilots and to introduce new

blood in to the cockpits will only help matters with the

attempt to lower insurance cost for the industry.

Insurance cost for the industry remains high, with the

shrinking fleet of aircraft, means that the training cost will

increase. The value of airplanes is soaring; the high cost of

new replacement aircraft for training isn’t feasible. The

FBOs’ are facing insurance that’s inadequate and

expensive, and its forcing companies to reduce their

operations or even cut them all together. Owners of flight

schools are having a hard time just staying in business.

The shortage of qualified instructors has slowed the flow

of new pilots, which in turn is putting a hardship on the

industry. The future of the industry could hold a brighter

out-look. One can only hope that society will change their

attitude towards litigation, this would hopefully drive down

cost of liability coverage insurance.


AVIATION INSURANCE

The industry hopes that with the use of simulators at all

levels of training will increase the number of better–

trained pilots and hopefully lower insurance cost at the

same time. Insurance can be one of the most expensive

elements in the fix cost of owning an aircraft. To keep

insurance cost under control in this difficult environment,

aircraft and aviation business owners are going to have to

make some changes in the way they purchase and think

about insurance. There are ways to reduce your insurance

cost, remember buying cheap insurance isn’t always the

best way to go, and it’s not heavily regulated by our

government. Companies can write policies pretty much

the way they want to, you must pick the right company for

you and your aircraft. When shopping you can ask your

friends who they do business with and ask them their

feelings on that company, and are they treated well.

Looking in one of the aviation trade magazines for

information dealing with aviation insurance companies is a

great source; get a phone number or a web address so

you can make contact.

Saving money is the key when shopping for insurance.

Only buy the needed coverage; if you don’t fly

passengers, why pay for the protection against them? You

can always change your coverage when the need arises.

Most people pay for coverage in the winter even if they’re

not flying. In the winter paying for in flight liability

insurance can be a waste. Why not store the aircraft in the

winter, and change to storage coverage for that period of


AVIATION INSURANCE

time. In most places flying without heater would be very

uncomfortable. Get extra training from the FAA (Federal

Aviation Administration) and other workshops, and

prove to the insurance company that you’re safe and

deserve a break on you insurance. Self-insure whenever

possible. Choose the highest liability limits you can qualify

for and afford, to guard against the catastrophic loss, and

only as much hull protection that you can afford. Match

your equipment to your needs.

Aviation has come a long way the last 100 years, and the

future could hold a brighter out-look for the industry. One

can only hope that society will change their attitude

towards the aviation industry and the litigation that

surrounds the industry. In the future, this could drive cost

down and make liability insurance affordable to the

private owners, and to the FBO’s.

CONCLUSION


AVIATION INSURANCE

I started this Project by asking the question “Why

Aviation Insurance is required?” In the course of the

analysis various trends and developments in the aviation

industry were discussed that provide partial answers to

this question. Airlines employ a wide variety of business

models while taking an aviation insurance contract. For

example, some companies like Kingfisher Airlines take

policy with high premium while others like Air India take

an aviation insurance contract with low premium. It was

also observed that airlines with huge and expensive

airbuses like ATR 42-500 aircraft tend to generate high

amounts of risk; while relatively less expensive aircraft

like A330 aircraft tend to generate less risk.

The aviation insurance market is highly volatile due to the

inherent nature of the risk and the underwriting cycle of

insurance. Historically, the market wide premium appears

to be almost as volatile as the claims, suggesting a lack of

consistency in underwriting this business.

The major caveat to my conclusion is that there is

significant amount of public data available to assist in

underwriting and pricing aviation insurance. This data can

be used to develop more effective underwriting rating

models for aviation insurance and this should result in

better selection of risks and more consistent profits for the

insurer.


AVIATION INSURANCE

The aviation insurance market, by its own nature, is highly

volatile. There are many causes including the overall

insurance underwriting cycle, the major accident risk, the

short-term memory of the insurance market, and the long-

tailed nature of determining responsible parties.

However, the increasing involvement of analytical

professionals such as actuaries should introduce more

effective methods for pricing airline insurance and this

should help stabilize the premium component of the loss

ratio equation.

Aviation has come a long way the last 100 years, and the

future could hold a brighter out-look for the industry. One

can only hope that society will change their attitude

towards the aviation industry and the litigation that

surrounds the industry.


AVIATION INSURANCE

RECOMMENDATIONS:

During the past century, man has realized his dream to

fly. The aircraft has been developed and partially

perfected. The aviation industry, as it is known today, has

grown into a set of definable sub-industries based upon

usage. Modern-day aircraft range from military to

commercial airlines to the most diverse group, general

aviation. As with any technology-based industry, aviation

continues to grow and develop. New uses for aircraft are

identified, better aircraft and avionics are created, and

problems are recognized and solved.

Although aviation has come a long way in the last 100

years, it is still a developing industry. With growth and


AVIATION INSURANCE

development, come problems that must be solved before

an industry can graduate to the next level.

Legal concerns are the biggest threat. It’s rare when

an aviation case goes to court, because insurance

agencies know they’ll lose when the jury hears the

case. It’s just too easy to prove pilot negligence; most

aviation accidents result from pilot error. Hence, today

there is a strict need that the legal authorities should

be lenient and should also listen to the airline. Every

time it’s not the fault of the pilots. Unbiased decision

can really enhance and improve the working of airlines

and also the efficiency of the pilots gets boosted.

The average age of both our pilot population and the

fleet (both commercial and general aviation) is

increasing. Aircraft hull and liability insurance for the

senior pilot has become a serious concern. The

underwriters are very worried about the age of both

the pilots and the aircraft. Hence, the insurance

industry should develop a special task force to help

deal with this problem. The insurable age of the

senior pilots should be extended and new blood

should be introduced in the cockpits to lower

insurance cost for the industry.

The airline should only buy the needed coverage; if

they don’t fly passengers, why pay for the protection

against them? They can always change the coverage


AVIATION INSURANCE

when the need arises. Most people pay for coverage

in the winter even if they’re not flying. In the winter

paying for in flight liability insurance can be a waste.

Rather they should store the aircraft in the winter,

and change to storage coverage for that period of

time.

To keep insurance cost under control in this difficult

environment, aircraft and aviation business owners

will have to make some changes in the way they

purchase and think about insurance. Buying cheap

insurance isn’t always the best way to go, and it’s not

heavily regulated by the government. The airline

should find an insurance player which takes low

premiums and has plenty of coverage options.

BIBLIOGRAPHY

BOOKS:

Insurance in India -P.S. Palande -R.S. Shah -M.L. Lunawat

Insurance (Fundamentals, Environment and Procedures)


AVIATION INSURANCE

-B.S. Bodla -M.C. Garg -K.P. Singh

Fundamentals of Risk and Insurance

Emmett J. Vaughan

Therese M. Vaughan

Insurance Chronicle- The ICFAI University Press (September, 2004)

WEBLIOGRAPHY

www.irdaindia.com

www.google.com

www.avbuyer.com

www.nationair.com

www.flykingfisher.com

www.niacl.com

www.airindia.com

PERIODICALS

Asia Insurance Review.

Kingfisher airlines annual report 2007-2008


http://www.niacl.com/

http://www.flykingfisher.com/

http://www.nationair.com/

http://www.google.com/

http://www.irdaindia.com/

AVIATION INSURANCE
