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.
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

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

accumulated contributions of all parties
participating in the scheme.”
Contractual Definition
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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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.

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The scope of insurance is much wider and
extensive.
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
Marine Insurance, life Insurance, Fire Insurance and
miscellaneous insurance are given below:
AVIATION INSURANCE
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
insurance. In 1972, the government of India nationalized
the general insurance business by forming GIC.

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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
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.

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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
Royal Exchange Assurance (1720), Phoenix Assurance
Company (1782), etc.
3. Miscellaneous Insurance

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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
 Money Insurance
 Fidelity Guarantee Insurance
 Workmen Compensation Insurance

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 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
AVIATION INSURANCE
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,
this was the first recognition of the airline industry as we
know it today.

AVIATION INSURANCE
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.

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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.
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

AVIATION INSURANCE
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
of total loss, this Agreed Value is payable in full. Under an
Agreed Value policy the replacement option is deleted.

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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.
 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

AVIATION INSURANCE
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".
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.

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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.

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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.
War Definition :

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 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".

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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:

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 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.
General Liabilities

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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

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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.

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

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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
the coverage from. That is a process consumer and the

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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
company. Whatever the process by which the client select

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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.
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

AVIATION INSURANCE
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 Report year, make, model and

INFORMATION 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

PROVISIONS profile and review insurance
provisions, deductibles and war—
risk perils.
MAINTENANCE DETAILS Explain whether you’ll outsource it,

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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
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

AVIATION INSURANCE
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!
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

AVIATION INSURANCE
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
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
AVIATION INSURANCE
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.
4. Get the right coverage for your needs
At every renewal, you should discuss your flying habits

with your broker. Many companies have territorial

AVIATION INSURANCE
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
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.

AVIATION INSURANCE
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 IN INDIA: TAKE

OFF STAGE

AVIATION INSURANCE
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,
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

AVIATION INSURANCE
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
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.

AVIATION INSURANCE
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.
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.

AVIATION INSURANCE
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
 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

AVIATION INSURANCE
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 instance
Oriental Insurance Company Limited retained just Rs.60
million out of the Rs1.5 billion aviation premium earned
last fiscal.

AVIATION INSURANCE
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:
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,
AVIATION INSURANCE
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 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,
AVIATION INSURANCE
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
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.
AVIATION INSURANCE
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.
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

AVIATION INSURANCE
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

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 6
cabin)
A 321(Single 2
cabin)
A 320 (Dual 10
cabin)
A 320 (Single 16

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.
Kingfisher airlines currently operates over 254 flights

daily.

AVIATION INSURANCE
• 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
also financed the aircraft acquisition plans of the
Kingfisher Airlines. The insurance deal will be executed the

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

leader in the domestic sector, has helped the airline to

AVIATION INSURANCE
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
B737 Freighters 6 0 6
A310 Freighters 4 0 4
TOTAL 90 58 148

AVIATION INSURANCE
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
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.

AVIATION INSURANCE
 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.
 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 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.
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.

AVIATION INSURANCE
 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
• EFFECTS OF 9/11 ATTACK ON

AVIATION INSURANCE

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
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 INSURANCE
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 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

AVIATION INSURANCE
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
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

AVIATION INSURANCE
these insurance rate increases on domestic and

international air transportation and commerce is
presented.
• Future of 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

AVIATION INSURANCE
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.
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

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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
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

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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.
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.

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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.
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

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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 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

AVIATION INSURANCE
down and make liability insurance affordable to the private

owners, and to the FBO’s.
• CONCLUSION
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

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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.
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

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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
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
AVIATION 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
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.

AVIATION INSURANCE
• BIBLIOGRAPHY
 BOOKS:
 Insurance in India
 -P.S. Palande
 -R.S. Shah
 -M.L. Lunawat
 Insurance (Fundamentals, Environment and

Procedures)
 -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

AVIATION INSURANCE
 www.niacl.com
 www.airindia.com
 PERIODICALS
 Asia Insurance Review.

 Kingfisher airlines annual report 2007-2008

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The customer is the most important

visitor in our premises.

He is not dependent on us. We depend

He does not disturb our work. He is the

He is not a stranger in our business. He

We do not do him a favour when we

He does us a favour by giving us an

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

INTRODUCTION TO SERVICE SECTOR

V.E.S. COLLEGE OF ARTS, SCIENCE & COMMERCE 2

The service sector accounts for more than half of

The service sector's share has grown from 43.69

V.E.S. COLLEGE OF ARTS, SCIENCE & COMMERCE 3

Some economists caution that if the service sector

Within the services sector, the share of trade,

V.E.S. COLLEGE OF ARTS, SCIENCE & COMMERCE 4

Customer satisfaction predominates the success of

V.E.S. COLLEGE OF ARTS, SCIENCE & COMMERCE 5

Insurance may be described as a social device to

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

V.E.S. COLLEGE OF ARTS, SCIENCE & COMMERCE 6

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

In the words of justice Tindall, “Insurance is a

V.E.S. COLLEGE OF ARTS, SCIENCE & COMMERCE 7

Payment on happening of a special event

The amount of payment depends on the nature of

The success of insurance business depends on the

large number of people insured against similar

Insurance is a plan, which spreads the risk and

losses of few people among a large number of

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,

V.E.S. COLLEGE OF ARTS, SCIENCE & COMMERCE 8

The scope of insurance is much wider and

Origin and Development of Insurance

Insurance in the modern form originated in the

The oldest and the earliest records of marine policy relates

 Marine Insurance in India

There is evidence that marine insurance was practiced in

V.E.S. COLLEGE OF ARTS, SCIENCE & COMMERCE 10

The early developments of life insurance were closely

 Life Insurance in India

The British companies started life insurance business in

V.E.S. COLLEGE OF ARTS, SCIENCE & COMMERCE 11

Fire insurance has its origin in Germany where it was

In India, fire insurance was started during the British

V.E.S. COLLEGE OF ARTS, SCIENCE & COMMERCE 12

Due to the increasing demands of the time, different forms

 Personal Accident Insurance: protection for loss from

V.E.S. COLLEGE OF ARTS, SCIENCE & COMMERCE 13

 Contractual Liability Insurance

But for my project I have taken the topic of AVIATION

This sector gained importance and created awareness

V.E.S. COLLEGE OF ARTS, SCIENCE & COMMERCE 14

In 1929 the Warsaw convention was signed. The

V.E.S. COLLEGE OF ARTS, SCIENCE & COMMERCE 15

By 1933 realising that there should be a specialist industry

The London insurance market is still the largest single

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