Professional Documents
Culture Documents
A PROJECT ON
AVIATION INSURANCE
SUBMITTED IN PARTIAL FULFILLMENT FOR THE
DEGREE OF BACHELOR OF COMMERCE IN
BANKING & INSURANCE (SEMESTER VI)
BY,
CHINMAY. R. JADHAV
UNDER THE GUIDENCE OF
PROF. YOGESH SANT
TO
UNIVERSITY OF MUMBAI
KETS V.G. VAZE COLLEGE OF ARTS, SCIENCE AND
COMMERCE MULUND (E), MUMBAI-400083
DECLARATION
I, Mr. Chinmay. R. Jadhav student of Third Year Banking and Insurance
(T.Y.B.Com B&I) Sixth semester hereby declare that I have completed the
project on AVIATION INSURANCE in the academic year 2011-2012.
This information collected is true and best to my knowledge and belief
Date:
Student signature
Chinmay.R.Jadhav
ACKNOWLEDGEMENT
functioning.
Executive Summary
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.
Insurance is one of the most popular in business today since they
characterized the new economy & disappearance of country boundaries.
The purpose of these study the valuation process & approaches in
aviation by analyzing the insurance corporation case base upon the
valuation this report will identify the why aviation insurance is needed.
This report the Indian Insurance sector, History of insurance in India,
History of Aviation Insurance, products & features of Aviation
Insurance,& Effects Of 9/11 Attack On Aviation Insurance.
INDEX
SR.NO
CHAPTER
PG.NO
1.
2.
13
3.
26
4.
60
5.
69
6.
Case Study
77
7.
Conclusion
8.
Bibliography
CHAPTER 1
HISTORY OF
AVIATION
INSURANCE
The origin of Indian civil aviation industry can be traced back to 1912, when
the first air flight between Karachi and Delhi was started by the Indian State Air
Services in collaboration with the UK based Imperial Airways. It was an extension
of London-Karachi flight of the Imperial Airways. In 1932, JRD Tata founded Tata
Airline, the first Indian airline. At the time of independence, nine air transport
companies were carrying both air cargo and passengers. These were Tata Airlines,
Indian National Airways, Air service of India, Deccan Airways, Ambica Airways,
Bharat Airways, Orient Airways and Mistry Airways. After partition Orient
Airways shifted to Pakistan.
In early 1948, Government of India established a joint sector company, Air
India International Ltd in collaboration with Air India (earlier Tata Airline) with a
capital of Rs 2 crore and a fleet of three Lockheed constellation aircraft. The
inaugural flight of Air India International Ltd took off on June 8, 1948 on the
Mumbai-London air route. The Government nationalized nine airline companies
vide the Air Corporations Act, 1953. Accordingly it established by 1995, several
private airlines had ventured into the aviation business and accounted for more
than 10 percent of the domestic air traffic. These included Jet Airways Sahara,
NEPC Airlines, East West Airlines, ModiLuft Airlines, Jagsons Airlines,
Continental Aviation, and Damania Airways. But only Jet Airways and Sahara
managed to survive the competition. Meanwhile, Indian Airlines, which had
dominated the Indian air travel industry, began to lose market share to Jet Airways
and Sahara. Today, Indian aviation industry is dominated by private airlines and
these include low cost carriers such as Deccan Airlines, GoAir, SpiceJet etc, who
have made air travel affordable.
The
first
10
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.
11
CHAPTER 2
RISKS COVERED IN
AVIATION
INSURANCE
12
AVIATION INSURANCE
NORMAL RISKS
LIABILITIE
The
above diagram suggests that there are mainly two kinds of risks which an aviation
insurance company will cover which has been divided into two parts. They are:
1. Normal Risks
2. Liabilities
These two risks are further divided into various parts which involve various
risks and liabilities they are which is explained in detail later on.
13
NORMAL RISKS
These risks are those risks which every aviation company in this industry
carries it on its back when it enters into the business. These risks may differ from
time to time and situation to situation. These are
1. Hull Risks
2. Hull War Risks
3. Spares All Risks/ War Risks
4. Hull total Loss Only cover
These risks are those risks which takes place when these takes place when
any of these factors comes into action. Because all the above risks mentioned
above are unpredictable and may occur at any time
14
HULL 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 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.
15
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.
16
The hull risks does not cover some risks whish are as follows
1. Wear, tear and gradual deterioration - in common with most non-marine
policies (which includes aviation insurance) these perils are thought to be
a trading expense and not a peril to be insured.
2. 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
17
regarded as wear and tear and is covered subject to the applicable policy
deductible.
3. 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"
18
19
The brutal second plane crash in World Trade Center, New York, United States of Ameica,
11 September,2001
20
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".
Other exclusions insurers will usually apply are, as follows:1. 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)
2. Any debt, failure to provide bond or security or any other financial cause
under court order or otherwise;
3. 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;
4. 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.
21
22
inside
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.
23
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.
24
CHAPTER 3
LIABILITIES IN
AVIATION
INSURANCE
25
LIABILITIES
Liabilities are those risks which may arise due to some consequences or
some reasons the company has to face. Those reasons are as follows
1. Aircraft Liability
2. Excess Liability
3. Aerospace Manufacturers products and Grounding Liability
4. Airport Owners and Operations Liability
5. Product Liability
A liability is a present obligation of the enterprise arising from past events,
the settlement of which is expected to result in an outflow from the enterprise of
resources embodying economic benefits.
The explanations of all the liabilities are given below
26
AIRCRAFT LIABILITY
Here in aircraft liability there are many other liabilities involved which are
further divided into four parts. They are
AIRCRAFT
3RD LIABILITY
PARTY
PASSENG
ER
BAGGAG
CARGO
AND
MAIL
These are the kinds of liabilities which are covered in aviation insurance the
explanation in detail is given below
27
PASSENGER LIABILITY
Coverage
for
killed
or
disabled
during
an
insured
aircraft.
Aviation
policies
divided
liability
coverage
into
two
28
For this reason Daily Cover policies are specifically for to cater for fare-paying
passenger liability.
29
Concorde crash on a hotel near Paris Airport just few minutes after the take off which
resulted in destruction of th hotel it fell on, 25 July, 2000
When one engages in recreational activities requiring the use of a vehicle - whether
it be land, water, or air sports related - there are inherent factors that could result in
liability issues. No one wants to enjoy an activity and then have the pleasure of it
clouded with possible situations that would result in liability claims against their
hard earned savings. This Third Party liability insurance for USUA members can
help relieve the worry of possible claims against the pilot should this type of
situation occur. Additionally, access to airports, flight parks, and flying events
often require liability coverage. Many states require insurance of this nature just to
operate an airplane of any description. Third party liability coverage is also less
expensive than full coverage, and therefore allows the members (insurance
30
holders) the opportunity to enjoy the thrill of aviation without the worry of liability
concerns or the expense of high-priced insurance.
The people can be only eligible who are a registered, certificated or licensed pilot
are eligible. Sport Pilot Students who are endorsed to solo are also eligible. Pilot
registration can be with any recognized organization.
31
BAGGAGE LIABILITY
This kind of liability may include various reasons in the happening. They are as
follows:
1. Delays
If your bags are delayed, try not to panic. The airlines typically have ways
to track them, and about 98 percent of all misplaced luggage is returned
eventually. If your bags are on the next flight, you could have them within a few
hours. If they've been sent to the wrong airport, it could take a couple of days.
Make sure to file your claim immediately at the airport and to give the attendant
a hotel or home phone number and address.
The airlines will typically bring you your luggage when it is found; you will
rarely need to return to the airport to pick it up. Additionally, many airlines will
reimburse any unexpected expenses caused by the loss or delay (keep your
32
receipts!). But be careful here -- the airline sometimes has the option to deduct
any reimbursement or stipend from any subsequent awards.
Before you leave the airport, be sure you know how to check on your bag's
status; some airlines have an online system while others will provide you with a
phone number to call for updates.
2. Lost Baggage
If the airline loses your bags, make sure you get a written claim for damages.
This may require a different form than the original "missing luggage" form.
This can be done at the airport or by mail.
On domestic flights, the airline baggage liability is capped at $3,300 per person.
On international trips, the liability limit may vary, as it is governed by various
international treaties, including the Montreal and Warsaw Conventions.
You may
need to
for
the
depreciated value of your items -- so the airline won't give you the full $1,000 you
33
paid for that suit you purchased two years ago.) You can purchase "excess
valuation" protection if your checked baggage is worth more than these limits (but
before doing so, make sure the items aren't already covered by your homeowner's
or travel insurance policy).
The airlines typically have a long list of items for which they will not be
held responsible; these include jewelry, money, heirlooms and other valuables.
These sorts of items should always be packed in your carry-on bag.
3.
Stolen Baggage
Head directly to
the
baggage
carousel
especially
at
larger
airports. Once you've left the baggage claim area, your claim is no longer with
the airline, but with the police.
34
4. Damaged
Baggage
Once you've gotten your bags off the carousel, immediately check them for
damage or other signs of tampering or mishandling. Report any damage before
leaving the airport; airline customer service will often want to inspect the bag.
Keep in mind that most airlines won't cover minor wear and tear.
35
According to,
Although Martinair Cargo will give its best efforts to deliver your shipment at its final
destination in good order and condition, sometimes damage / depreciation, delay or
36
(partial) loss unfortunately occurs. In case such an irregularity should affect your
shipment, a claim can be filed with Martinair Cargo Claims. In order to facilitate and
speed up the claim handling process, we kindly would like to draw your attention to the
following:
I What to do in case you receive your shipment with damage
1
Make sure that the damage of the shipment is noted on the release
receipt of your cargo at the final destination, as recorded on the Airway Bill.
1
Measure the temperature of the shipment upon release and measure the
boxes on the outside of the pallets in case of complete pallet delivery. Please
record the temperature on the release form/delivery receipt of the warehouse.
37
To strengthen your case, you can appoint an independent and objective surveyor to
check the condition of your perishable shipment. Please make sure that your shipment
will be surveyed as soon as possible but not later than 8 hours after arrival at your
premises: perishables are time sensitive and/or temperature sensitive commodities,
therefore only a survey done shortly after arrival of the cargo will be considered as an
objective survey.
38
Send a preliminary claim to Martinair Cargo Claims within 120 days from
Pilferage is defined as the loss of one or more items out of one or more
pieces
1
the date of delivery (both partial loss and pilferage are considered as damage).
1
Make sure, that partial loss and/or pilferage is noted on the warehouse
39
explicitly indicate the items / pieces claimed for. Please note that Martinair Cargo
cannot offer full compensation based on the commercial / sales invoice as a refund
for loss of profit is not part of our contractual liability.
2
Packing list. Please indicate the items / pieces claimed for Cession of
Rights, if required, from the party (shipper / consignee as mentioned of the Master
Air Waybill) entitled to claim, which states that your company is authorized to act
on their behalf.
3
4 Copy of the Martinair Master Air Waybill (and if possible a copy of the
relevant House Air Waybill).
5
A specification of the amount claimed for (by means of a shippers invoice,
an independent survey report, a bill of sale or a bill of repair).
1
In case your claim concerns damage / depreciation, please enable us to verify the extent
/ direct consequences of the irregularity by also enclosing:
1
Independent and objective survey report, if issued. In case the amount of the
40
Destruction report, in case the shipment was no longer fit for sale.
3
4
Bill (s) of sale, in case the shipment was still fit for sale.
5
6
Only upon receipt of the information as requested above, your claim can be taken into
consideration. If any of these documents are not available, please explicitly state so.
Please be informed that an adequate and sufficient provision of all relevant documents
enables a swift and efficient claim handling procedure.
IV Claims handling information
1
An airline can only be held responsible for proven irregularities which can
be held against the carrier and which occurred while being under its custody. This
means the period from acceptance of the shipment at the airport of departure until
delivery at the airport of destination.
1
case of damage (also including partial loss and pilferage) a (preliminary) notice of
claim must be filed within 14 days from the date of receipt of the cargo. In case of
41
loss (all pieces reported missing) a (preliminary) notice of claim must be filed
within 120 days from the date of issue of the Mawb.
1
Conditions
(available
on
the
website
of
Martinair
Cargo:
The right to claim shall be extinguished if any action is not brought within
two years, reckoned from the date of arrival at the destination, or from the date on
which the aircraft ought to have arrived, or from the date on which the carriage
was stopped.
42
Whenever our liability for a claim exceeds our policy deductible, Martinair
Cargo will be forced to hand over the file to the liability claims adjusters
appointed by our insurers. The claim will then be dealt with directly by these
claims adjusters and the claimants will be contacted accordingly.
1
Final Release Form before being able to settle, hence relieving Martinair Cargo
from any further future liability. After receipt of the duly signed and stamped Final
Release Form and if necessary the Cession of Rights, settlement will be effected.
Our financial department will transfer the amount to your bank account, for which
we of course need your banking details, including swift code.
1
43
EXCESS LIABILITY
Excess liability is all about the refueling and the defueling of the aircraft. Excess liability is also
known as THIRD PARTY WAR RISKS.
44
45
Coverage
This policy protects parties from claims arising from injury or damage
caused by defects in the products sold or manufactured or from improperly
completed operations. Manufacturers, distributors and sellers can be open to
liability even if it is proven that the product was used improperly. Insurance
46
coverage will cover their legal fees needed for defense against claims and class
action suits
Statistics
Though air traffic is considered to be a safe means of transportation,
accidents do occur. Some of the more common causes of many of these
incidents are faulty equipment and structural or design problems. Aviation
products can cause catastrophic accidents as the result of relatively minor
failures.
47
GROUNDING LIABILITIES
This may include liabilities as follows
PREMISES-LIABILITY
This basic part of the policy will protect the liability of the operation for the
employees while performing their duties. This would be the fueling operation, and
any part of the business associated with the office and ramp areas. The facility will
add to this policy additional parts to cover the specific needs of each operation.
48
HANGARKEEPERS
The larger operations, you know, like a Bell service center with 8 to 10 beautiful
ships in various stages of maintenance with full pilot training facilities for instance
is almost always going to have exceptional policies covering their business
operations that include what you do. Their policy will cover any person acting on
behalf of the operation in the carrying out of their duties. This policy will protect
you if you should do something unintentional that causes damage. An example
might be in the process of moving a helo in or out of the hangar with a power tug.
If you are watching one side and start the turn too soon and catch the tail boom or
rotor on the hangar door or another helicopter sitting next to the one you are
moving, the damage you cause will be covered by the coverage.Now lets say you
work for a maintenance only shop with just 1or 2 ships being worked on at any one
time. In these difficult economic times, it is not unheard of for some operations to
49
trim expenses and not purchase the Hangarkeepers option of the policy. If you are
unsure, work up the courage to ask your boss if you are covered under this part of
the policy. Seeing a copy of the declarations page with the policy effective dates
will help reassure you and will operations Hangarkeepers also tell you if the
coverage has been purchased.
50
TRAINING
51
IN-FLIGHT-HANGARKEEPERS
This coverage is important if you are operating the helicopter in flight. It is not
uncommon for an operation to do a test flight after maintenance has been
performed or if avionics have been installed or changed. Sometimes a problem
reported by the owner can only be replicated while in flight. If you are the one who
flies it, be sure you meet all of the pilot requirements of both the operators policy
and the helicopter owners policy.
In almost every case, an owner will have an aircraft policy that has as part of their
pilot warranty a paragraph that states what qualifications a pilot needs to meet
before he can fly as part of a maintenance flight. There are some operators who
believe that the
owners policy
will cover any
damage
that
results from a
loss
to
the
aircraft
while
flying
under
this
provision.
Remember that
the owner has a
Eligible pilots
policy to protect
them; not you.
52
The Insureds liability as an airport owners and/or airport structures that may
include:
- fuelling station;
Insurance risks:
53
Insurance period:
- security measures;
Exclusions:
Specific:
55
PRODUCT LIABILITY
Product liability is the area of law in which manufacturers, distributors,
suppliers, retailers, and others who make products available to the public are held
responsible for the injuries those products cause.
Theories of liability
In the United States, the claims most commonly associated with product liability
are negligence, strict liability, breach of warranty, and various consumer protection
claims. The majority of product liability laws are determined at the state level and
vary widely from state to state. Each type of product liability claim requires
different elements to be proven to present a successful claim.
Plane crash due to manufactures and other members related with the airlines
56
Types of liability
Section 2 of the Restatement (Third) of Torts: Products Liability distinguishes
between three major types of product liability claims:
manufacturing defect,
design defect,
Manufacturing defects are those that occur in the manufacturing process and
usually involve poor-quality materials or shoddy workmanship. Design defects
occur where the product design is inherently dangerous or useless (and hence
defective) no matter how carefully manufactured. Failure-to-warn defects arise in
products that carry inherent nonobvious dangers which could be mitigated through
adequate warnings to the user, and these dangers are present regardless of how well
the product is manufactured and designed for its intended purpose.
57
CHAPTER 4
FUTURE OF
AVIATION
INSURANCE
58
LEGAL CONCERNS
In many cases, changes in other areas of our society have a great influence
over aviation. This is the case with our court system. The trend toward
unreasonable verdicts and ridiculous awards has forced many aircraft owners to
create shell corporations to "front" as the registered owner of their aircraft. Owners
today are uncertain as to how much liability insurance is adequate protection, a
situation made far worse by the growing reluctance of insurance underwriters to
59
offer higher limits of liability protection at any price. The underwriters explain that
it is impossible for any aviation insurance company to predict an adequate liability
premium rating structure when the court decisions are so volatile and erratic. All
aviation insurance companies are heavily reinsured by companies in London and
other foreign markets, and those foreign insurers usually charge passenger liability
premiums for aircraft operated in the United States that are three to five times as
much as those paid by non-U.S. operators.
And so it goes for the owner of general aviation and commercial aviation aircraft
in the United States. Aircraft owners seem to be trapped between inadequate
coverage limits, high-priced liability insurance premiums, and the perils of the U.S.
court system.
60
"Instruction and Rental" risks while others have increased their premiums for this
class.
The future may see the small maintenance facility replaced with a newtechnology aircraft requiring far less maintenance. The same style of maintenance
used by the military and airlines -- the remove-and-replace concept -- may become
commonplace throughout general aviation as well. Maintenance problems may be
identified by computer and repaired only by the manufacturer at factory service
centers, a practice that is already common in today's bizjet fleet. "Plug and fly"
replacement parts keyed to a computer analysis may decrease cost with little or no
downtime.
All this, of course, is little consolation to owners of existing, oldertechnology, maintenance-intensive aircraft. They're not getting any younger ... and
neither are we.
61
Aircraft hull and liability insurance for the senior pilot has become such a
concern that our insurance agency has developed a special task force to help deal
with this problem. Looking into the future, as the baby boomers age, our average
pilot populations continue to age. As with automobile drivers, we have found this
segment of our industry to be no more likely to have an accident than the younger
group. In fact, they tend to be more cautious, better trained, and better financed
than most underwriters care to admit. Maybe it is because we are growing older
ourselves, but we believe increased awareness at the underwriting level will soon
improve insurance company acceptance and serve to extend the insurable age of
the senior pilot. We can assure you, we are doing everything in our power to
influence the underwriting community in that direction.
Meantime, what can be done to infuse new blood in the cockpit? The
industry is currently suffering from a lack of trained professional pilots. Without
the military-trained pilot to help fill the need for commercial and airline pilots, we
must depend solely upon civilian-trained pilots. This then becomes an economic
problem. There is no longer a generous GI Bill to offset the cost of flight training
in an age of escalating costs.
Many of our charter and corporate clients complain of sending a young
second-in-command to school on their aircraft, only to have the airlines snap them
up upon completion. The trend toward younger and younger pilots in the right seat
is disturbing whether at the charter, corporate, or airline level of operation.
62
SHRINKING FLEET
Primary training costs are increasing for a number of reasons. The high cost
of new replacement training aircraft and inadequate and expensive insurance
render the training sector of aviation vulnerable to lawsuits and financial disaster,
and a shortage of qualified instructors has slowed the flow of new pilots to a
trickle. The shortage of career CFIs is due in part to the low pay scale at most flight
schools, whose owners respond that they're just barely able to stay in business as it
is.
The majority of the general aviation aircraft flying today are 15 to 20 years
old and older. To replace a simple single-engine Cessna 172 today would cost in
excess of $140,000. A new twin-engine Beech Baron is in the $1,000,000 range. Of
course, used aircraft are always an option. The obvious problem is that as new
replacement aircraft increase in cost, the price of good used aircraft is forced up as
well. Today, there are no bargains. It is often a struggle to find a used aircraft for
sale with no damage history. Couple the normal attrition of our aging fleet with the
high cost of replacement aircraft and it is easy to understand why our overall
general aviation numbers are plummeting.
Again, a look into the future suggests that the majority of primary training
will be done in flight simulators and computerized flight-training devices. As
demand increases and technology advances, the full-motion simulator should
become much more affordable and so realistic the only thing left for the student
pilot is the checkride. "Safe and inexpensive" will become the name of the game.
63
If you want proof, the military has already adopted this method of training
from the combat tank to aircraft and everything in between, and airline pilots are
getting type-rated in new transport jets without having ever set foot in the actual
aircraft.
65
Of course, adversity is the mother of innovation (and invention). With this in mind,
the future is very bright. New methods of training using simulators at all levels will
produce more, better-trained pilots. As these techniques become more available,
the costs will continue to decrease. Some of the new-generation flight simulation
software for home PCs is quite spectacular, and CFIs tell us it offers excellent
training value (although the FAA does not yet recognize this fact). New technology
and new production methods may eventually bring down the cost of new aircraft
ownership, and a younger, more efficient fleet will be born. A modern fleet of this
type should be less expensive to repair and with the improved repair costs,
insurance hull premiums will also decline. In addition, these new-age
improvements are producing aircraft that are easier to handle and fly. Safety and
comfort seem to be a priority. As this permeates our fleet, accidents will surely
decrease, and insurance premiums will decline as well.
The advent of the computer is changing the way we live our lives, and the cockpit
is no exception. First seen in our navigational aids with the very affordable GPS,
the computer is revolutionizing the entire look and function of our instrument
panels. Tom Chappell, president of our agency, recently attended the open house of
one of our clients to view his new Lear 45. This new-generation aircraft is truly an
awakening. Sitting in the cockpit wondering just what all the new pretty and
colorful screens and dials were, Tom felt as if he was viewing a piece of equipment
from a future epoch. The instrumentation, function and completeness of the panel
were truly a look into the future of general aviation. The way pilots are trained in
the future will be changing -- not just to cut costs, but because the aircraft of the
future are here and are like nothing you have ever seen.
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CHAPTER 5
INDIAN
GOVERNMENT IN
AVIATION
INSURANCE
67
68
This is more so in the General Aviation (generally aircraft with less than 61 seats)
segment where the sum insured limits are within the capacities of many Indian
Insurers. General Aviation buyers in India have enjoyed substantially lower
premium payouts in 2008 compared to their world and regional peers, as buyers
have bargained hard taking advantage of the soft market conditions and excess
market quite a few buyers have switched their insurers. On the Airline front,
pricing continues to be driven by leading international markets especially in
London, as Indian Insurers continue to off load major risks to international
companies mainly in the European sub continent, with insurance brokers playing a
very important role in the entire process. Market Potential For 2008, Aviations
direct premium income in India is circa INR 3,750 million and this includes buyers
from all segments including airlines, general aviation, aerospace, airports, ground
handlers, catering companies etc but excluding satellite. Over 75% of the total
premium comes from the airline segment with another 23% from General Aviation.
A very small portion of 2% is contributed by airport, ground handlers, catering
segment etc. In addition, capacity. In the process, National Reinsurer, GIC Re
writes substantial international aviation business (mainly by way of inward
reinsurance) coming into the country and gradually other insurers are following
suit, but with caution. Over the last 10 years GIC Re has emerged as one of the
largest aviation reinsurer in the international market and is playing a key role in
supporting Indian Insurers. Currently there are over 200 buyers of aviation
insurances in the country who need aviation products in one form or other. Many
new buyers have entered the market in 2008 and the trend is expected to continue
in 2009 albeit at a slow pace. For the airline sector, customer base and number of
aircrafts has increased significantly in the past three years but current economic
situation is taking a toll on its future growth.
69
When one compares the above limits to 2-3 years back it signifies a jump of over
200%-250% and majority of the capacity comes from National Reinsurer, GIC Re.
New capacity has entered Indian market especially during 2007, 2008 with Private
Insurers buying reinsurance programmes to support their direct underwriting. At
the same time existing Insurers have expanded their underwriting limits.
It is expected that capacity will be more or less stable during 2009 and as a result
dependence on international market for General Aviation is likely to get reduced,
but for large airline risks reliance on international market is expected to continue.
70
Claims Scenario
Each Insurer will have its own underwriting experience
to show and can vary from its peers considerably depending on their participation
on the policies that has produced losses. General Aviation claims in 2008 are
expected to exceed Rs. 500 million and 2009 has started on a bad note with claims
in first five months exceeding Rs.350 million. As against this, past 10 years
average general aviation losses are hovering around Rs.400 million. When we
compare these claim figures against the total general aviation premium in India,
one may come to a conclusion from the insurers perspective that general aviation is
profitable over the last 10 years period. This may not be true for all insurers,
especially considering the fact that 10 years average loss figure consists of two or
three major losses in each year. Insurers participating on these losses would have
been hit hard. Majority of the losses in the last 10 years are on account of aircraft
damages and liability claims forma a very small portion of it. However, by no
means does this give any indication into the future considering the catastrophic
nature of aviation business.
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Montreal Convention
The Indian Government ratified Montreal Convention 1999 in March 2009 and
currently it applies to international travel. There is nothing on record at this stage
to show that the revised liability limits are applicable to domestic sectors. In brief,
the Convention has increased compensation levels for international passengers in
the event of death or bodily injury and damage and delay to the passenger baggage
and cargo. While the compensation for death or bodily injury has increased almost
7 times from the existing levels of approximately USD 20,000 to around USD
140,000, the compensation for damage to the checked baggage has increased from
approximately USD 20 per kg to around USD 1,400 per passenger. The
compensation for damage to cargo has increased from USD 20 per kg
approximately to USD 24 per kg. The Warsaw System, which is in force in India
by way of Carriage by Air Act, 1972 had allowed four choices of jurisdiction for
filing of a claim by the passenger, namely, place of issue of ticket, principle place
of business of the carrier, the place of destination of the passenger and the place of
domicile of the carrier.
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Through the Montreal Convention a fifth jurisdiction is added which is the place of
domicile of the passenger, provided the airline has a presence there. Therefore an
Indian would be able to file claim in India even if the journey was undertaken
outside India. Liability Limit for domestic passengers in the event of death or
bodily injury continues to be at the old level of Rs.750,000 for passengers above
12 years of age and Rs.350,000 for below 12 years. As regards damage and delay
to the passenger, baggage compensation is Rs.4,000 per passenger for hand
baggage and Rs.450 per kg for registered baggage. So far, Insurers have responded
very positively by covering their customers based on the revised limits for
international travel and it remains to be seen whether new limits will be applicable
for domestic travel as well and its impact on the liability claims scenario.
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Aviation
Liability
Insurance
Limits
in
India:
Western European countries including countries in the Far East namely Hong
Kong, Singapore have adopted regulations specifying minimum liability insurance
limits for aircraft based on the maximum take off weight of the aircraft and
passenger seating capacity, however India is yet to adopt any such regulations.
Even neighboring countries like Sri Lanka and Nepal have minimum liability
insurance requirements for aircraft and it may not be too long before India adopts
such requirements. While Airlines and Corporate Jet owners are buying liability
limits in line with the international trend, there is no similar trend when it comes to
helicopter operators. Like Airline policies, liability limits on Corporate Jets many
times are driven by financing /purchase agreements; however helicopter operators
tend to buy low limits
74
CASE STUDY
75
company
this
service
provides
as
provides
professional
76
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.
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.
77
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.
Claims
In case of claims following are illustrative documents that are generally
called for from the insured.
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Certificate of airworthiness/registration
Crew details
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CONCLUSION
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.
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.
80