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Aviation insurance

History
Aviation Insurance was first introduced in the early years of the 20th century. The first-ever aviation
insurance policy was written by Lloyd's of London in 1911. The company stopped writing aviation
policies in 1912 after bad weather at an air meet caused crashes, and ultimately losses, on those
first policies.
The first aviation polices were underwritten by the marine insurance underwriting community. The
first specialist aviation insurers emerged in 1924.
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 in itself is not inherently dangerous. But to an even greater degree than the sea, it is terribly unforgiving of
any carelessness, incapacity or neglect."[3] Captain A. G. Lamplugh, chief underwriter and principal surveyor of
British Aviation Insurance Company (1931)

Realising that there should be a specialist industry sector, the International Union of Marine
Insurance (IUMI) first set up an aviation committee and later in 1933 created the International Union
of Aviation Insurers (IUAI), made up of eight European aviation insurance companies and pools.

The London insurance market is still the largest single centre for aviation insurance. The market is
made up of the traditional Lloyd's of London syndicates and numerous other traditional insurance
markets. Throughout the rest of the world there are national markets established in various
countries, each dependent on the aviation activity within each country. The United States has a large
percentage of the world's general aviation fleet and has a large established market. According to the
2014 report from GAMA (General Aviation Manufacturers Association), there are 362,000 general
aviation aircraft worldwide, and 199,000 (or roughly 55%) are based in the United States. [4]

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).[citation needed]

Most airlines arrange "fleet policies" to cover all aircraft they own or operate. [5]

Insurance fraud were the motives for suicidal passengers to crash Pacific Air Lines Flight
773, Continental Airlines Flight 11 and National Airlines Flight 2511.
Types of insurance[edit]
Aviation insurance is divided into several types of insurance coverage available. [6]

Public liability insurance[edit]


This coverage, often referred to as third party liability covers aircraft owners for damage that their
aircraft does to third party property, such as houses, cars, crops, airport facilities and other aircraft
struck in a collision. It does not provide coverage for damage to the insured aircraft itself or coverage
for passengers injured on the insured aircraft. After an accident an insurance company will
compensate victims for their losses, but if a settlement can not be reached then the case is usually
taken to court to decide liability and the amount of damages. Public liability insurance is mandatory
in most countries and is usually purchased in specified total amounts per incident, such as
$1,000,000 or $5,000,000.[6]

Passenger liability insurance[edit]


Passenger liability protects passengers riding in the accident aircraft who are injured or killed. In
many countries this coverage is mandatory only for commercial or large aircraft. Coverage is often
sold on a "per-seat" basis, with a specified limit for each passenger seat. [6]

Combined Single Limit (CSL)[edit]


CSL coverage combines public liability and passenger liability coverage into a single coverage with a
single overall limit per accident. This type of coverage provides more flexibility in paying claims for
liability, especially if passengers are injured, but little damage is done to third party property on the
ground.[6]

Ground risk hull insurance not in motion[edit]


This provides coverage for the insured aircraft against damage when it is on the ground and not in
motion. This would provide protection for the aircraft for such events as fire, theft, vandalism, flood,
mudslides, animal damage, wind or hailstorms, hangar collapse or for uninsured vehicles or aircraft
striking the aircraft. The amount of coverage may be a blue book value or an agreed value that was
set when the policy was purchased.[6]
The use of the insurance term "hull" to refer to the insured aircraft betrays the origins of aviation
insurance in marine insurance. Most hull insurance includes a deductible to discourage small or
nuisance claims.

Ground risk hull insurance in motion (taxiing)[edit]


This coverage is similar to ground risk hull insurance not in motion, but provides coverage while the
aircraft is taxiing, but not while taking off or landing. Normally, coverage ceases at the start of the
take-off roll and is in force only once the aircraft has completed its subsequent landing. Due to
disputes between aircraft owners and insurance companies about whether the accident aircraft was
taxiing or attempting to take-off, this type of coverage has been discontinued by many insurance
companies.[6]

In-flight insurance[edit]
In-flight coverage protects an insured aircraft against damage during all phases of flight and ground
operation, including while parked or stored. Naturally, it is more expensive than not-in-motion
coverage, since most aircraft are damaged while in motion.[6]
An aviation accident is defined by the Convention on International Civil Aviation Annex 13 as an
occurrence associated with the operation of an aircraft, which takes place between the time any
person boards the aircraft with the intention of flight until all such persons have disembarked, where
a person is fatally or seriously injured, the aircraft sustains damage or structural failure or the aircraft
is missing or is completely inaccessible.[1] If the aircraft is destroyed or severely damaged so that it
must be written off, it is further defined as a hull loss accident.[2] Annex 13 further defines an aviation
incident as an occurrence, other than an accident, associated with the operation of an aircraft which
affects or could affect the safety of operation.[1]

The first fatal aviation accident was the crash of a Rozire balloon near Wimereux, France, on June
15, 1785, killing its inventor Jean-Franois Piltre de Rozier as well as the other occupant, Pierre
Romain.[3] The first involving a powered aircraft was the crash of a Wright Model A aircraft at Fort
Myer, Virginia, USA, on September 17, 1908, injuring its co-inventor and pilot, Orville Wright, and
killing the passenger, Signal Corps Lieutenant Thomas Selfridge.

Safety

In over one hundred years of implementation, aviation safety has improved considerably. In modern
times, two major manufacturers still produce heavy passenger aircraft for the civilian
market: Boeing in the United States of America, and the European company Airbus. Both place huge
emphasis on the use of aviation safety equipment, now a billion-dollar industry in its own right; for
each, safety is a major selling pointrealizing that a poor safety record in the aviation industry is a
threat to corporate survival. Some major safety devices now required in commercial aircraft involve:

Evacuation slides aid rapid passenger exit from an aircraft in an emergency situation [35]

Advanced avionics computerized auto-recovery and alert systems[36]

Turbine engines durability and failure containment improvements[37]

Landing gear that can be lowered even after loss of power and hydraulics

Measured on a passenger-distance calculation, air travel is the safest form of transportation


available: Figures mentioned are the ones shared by the air industry when quoting air safety
statistics. A typical statement, e.g., by the BBC: "UK airline operations are among the safest
anywhere. When compared to all other modes of transport, on a 'fatality per mile basis', air transport
is the safest six times safer than traveling by car; twice as safe as rail."[39]
However, when measured by fatalities per person transported, buses are the safest form of
transportation. The number of air travel fatalities per person is surpassed only by bicycles and
motorcycles. This statistic is used by the insurance industry when calculating insurance rates for air
travel.[40]
Per every billion kilometers traveled, trains have a fatality rate 12 times over air travel; by
comparison, fatality rates for automobiles are 62 times greater than air travel. By contrast, for every
billion journeys, buses are the safest form of transportation. By the last measure, air transportation is
three times more dangerous than car transportation, and almost 30 times more dangerous than bus

A 2007 study by Popular Mechanics found passengers sitting at the back of a plane are 40% more
likely to survive a crash than those sitting in the front. Although this article quotes Boeing, the FAA
and a website on aircraft safety, all claim there is no "safest" seat. The article studied 20 crashes, not
taking into account the developments in safety after those accidents. [42] However, a flight data
recorder is usually mounted in the aircraft's empennage (tail section), where it is more likely to
survive a severe crash.
Over 95% of people in U.S. plane crashes, between 1983 and 2000, survived. [43]
In efforts to prevent incidents such as the disappearance of Malaysia Airlines Flight MH370, a new
standard has been issued for all commercial aircraft to report their position every 15 minutes to air
traffic controllers, despite country of origin. The regulation was scheduled to take effect in 2016 by
the ICAO, and requires no new aircraft equipment so long as airlines adhere to it. This requirement
is part of a long-term plan, in which by 2020 ICAO will require new aircraft be fitted with data
broadcast systems that air traffic controllers are in constant contact with. The plan is called the
Global Aeronautical Distress and Safety System.

Annual Aviation Safety Review (EASA)[edit]


The European Aviation Safety Agency (EASA) is tasked by Article 15(4) of Regulation (EC) No
216/2008 of the European Parliament and of the Council of February 20, 2008 to provide an annual
review of aviation safety.
The Annual Safety Review presents statistics on European and worldwide civil aviation safety.
Statistics are grouped according to type of operation, for instance, commercial air transport, and
aircraft category, such as aeroplanes, helicopters, gliders, etc. The Agency has access to accident
and statistical information collected by the International Civil Aviation Organisation (ICAO).[51] States
are required, according to ICAO Annex 13, on Aircraft Accident and Incident Investigation, to report
to ICAO information, on accidents and serious incidents to aircraft with a maximum certificated take-
off mass (MTOM) over 2250 kg. Therefore, most statistics in this review concern aircraft above this
mass. In addition to the ICAO data, a request was made to the EASA Member States to obtain light
aircraft accident data. Furthermore, data on the operation of aircraft for commercial air transport was
obtained from both ICAO and the NLR Air Transport Safety Institute.[

The Aircraft Crashes Record Office (ACRO), a non-government organization based in Geneva,
compiles statistics on aviation accidents of aircraft capable of carrying more than six passengers,
excluding helicopters, balloons, and combat aircraft. Note that ACRO only considers crashes in
which the aircraft has suffered such damage that it is removed from service, which will further reduce
the statistics for incidents and fatalities compared to some other data. [46]
According to ACRO, recent years have been considerably safer for aviation, with fewer than 170
incidents every year between 2009 and 2015, compared to as many as 226 as recently as 1998. [47]
Annual fatalities have been less than 1,000 in eight of the thirteen years since 2004, with 2013
experiencing the lowest number of fatalities, at 459, since the end of World War II. [48]
2014 included the disappearance of flight MH370 over the Indian Ocean (possible homicide, plane
not found apart from minor debris washed ashore) and the shootdown of flight MH17 by pro-Russian
separatists in Ukraine as part of the War in Donbass. The total number of fatalities in 2014 was 869
more than in 2013.
Deaths and incidents per year according to ACRO data, as of February 2017

Year Deaths[48] # of incidents[47]

2017 88 8

2016 629 102

2015 898 122

2014 1,328 122

2013 459 139

2012 800 156

2011 828 155

2010 1,130 162

2009 1,108 163

2008 952 190

2007 981 171

2006 1,298 193

2005 1,463 194

2004 767 178


2003 1,233 201

2002 1,418 198

2001 1,539[a] 211

2000 1,586 198

1999 1,150 221

(Data has significantly changed since November 2015 after a major upgrade to the death rate and
crash rate web pages.[49][50] This may reflect a change between a static and dynamic web page, where
data was made to be automatically updated based on the incidents in their archives.)
PRESENT POSITION
The position as at December 2012 can be summarised as follows:
Because of the unprecedented extent of exposure revealed on 11 September, commercial
insurance cover for passenger and third party BI and PD war risks now costs more.
Full war risk cover remains in place for hulls and passenger liabilities.
Options exist in the commercial market to purchase separate policies to increase the
US$50m third party limit to US$1bn for service providers and manufacturers and up to
US$2bn for airlines. This is in addition to the US$1.5bn to US$2bn that continues to be
available for passenger liabilities.
Third party war risk covers made available by various individual providers are unlikely to
change significantly in the short term.
Full war risks cover remains available for hulls and passenger liabilities. With the advent of
the A380 a number of carriers now buy limits of USD2.25 billion.
New versions of the write-back clauses for liabilities which restrict the cover available for
chemical and biological risks have been published but are not generally being used.
Cover for Third Party BI and PD risks is still not fully integrated within the main all risks
policies, other than for General Aviation risks. Airlines, Airports and Service Providers still
commonly purchase excess layers to supplement the cover included in their basic policies.
The most common sub-limit for Third Party war are $150m or $250m, although higher or
lower sub-limits are also available.
By and large cover for significant limits of Third Party war is available only with an aggregate
policy limit (although this may be a multiple of the per occurrence limit).
Pricing for this type of cover has continued to fall and for airlines it is now substantially lower
than the cost seen in the immediate aftermath of 9/11.
It is important to understand that the aviation insurance market is a very competitive free
market, and the precise details of each war risks insurance policy will vary according to the
individual insurers view of the market and the risk profile of the particular insured.

AVIATION INSURANCE BY BARBARA H. WOODWARD According to the United States


Bureau of Air Commerce figures there were only 9,152 licensed aircraft in the United States as
of January 1, 1938 and of this number the scheduled airlines operated 386. The values of these
planes range from less than one thousand dollars up to three-quarters of a million dollars, while
the uses to which the aircraft are put are numerous and varied. Furthermore, conditions in
airplane design and operation are changing so rapidly that it is impossible to keep up with
developments. For these reasons it can be seen that the time for placing aircraft insurance on an
actuarial basis has not yet arrived. Therefore this paper will not be concerned with possible
ratemaking formulae but will confine itself to a brief review of the aviation rate-making picture
as it exists today with particular emphasis on the main casualty coverages.

AVIATION INSURANCE CARRIERS Aviation insurance in the United States is written by


three underwriting groups of companies; the Aero Insurance Underwriters, the Associated
Aviation Underwriters and the United States Aviation Underwriters. These three groups are
members of the Board of Aviation Underwriters, the rate-making organization for aviation
insurance, which at the present time only operates in New York State.

CLASSIFICATIONS Aviation risks have been classified into five main classes according to the
use of the aircraft. These classes are: 1. Private Pleasure All planes used for private pleasure and
personal business purposes exclusively. 82

AVIATION IN SURANCF.. 2. Industrial Aid Planes used for transportation of executives and
employees and for sales promotion purposes and owned by a business organization not otherwise
connected with the aviation business. 3. Commercial--Flying Services Planes operated for hire in
connection with passenger and cargo carrying, charter flights, photography, sales demonstration,
either including or excluding student instruction. 4. Aircraft and~or Aircraft Engine
Manufacturing 5. Scheduled Air Lines Planes carrying passengers, mail and cargo on a regular
schedule.

HULL INSURANCE COVERAGE Hull Insurance covers against loss or damage to the aircraft
specifically described in the policy due to the following perils : Fire A--fire on the ground only,
excluding the running of engines. Fire B--fire on the ground only, including the running of
engines. Fire C fire on the ground and in the air, excluding fire following crash. Fire D--fire
under all circumstances. Perils of the Air or Crash--Damage to the aircraft during flight due to
collision with the ground, water or other object, including damage by fire or explosion caused by
such collision and including damage due to stranding or sinking or water damage arising from
flight. An aircraft unreported for sixty days after take-off is deemed to have been lost by reason
of one of the above flying perils. Windstorm.--Damage to the aircraft by Tornado, Cyclone or
Windstorm except while the aircraft is in flight or taxiing subsequent thereto

. AVIATION INSURANCE 83 Land Damage--Damage to the aircraft while on land, but not in
flight or taxiing, caused by hail or by being struck by or colliding with another aircraft, vehicle
or object (excluding any aircraft, vehicle or object owned or operated by the Assured or his
employees). Mooring--Damage to water-alighting aircraft, while not in flight or taxiing, caused
by windstorm, hail, stranding or sinking or being struck by or colliding with another aircraft,
vehicle or object (excluding any aircraft vehicle or object owned or operated by the Assured or
his employees). Theft, Robbery and Pil]erage--Theft, robbery and pilferage, except by any
person in Assured's household or employe.

CASUALTY ~NSURANCE COVERAGE Casualty Insurance is the usual third party liability
coverage comparable to bodily injury and property damage on automobiles except that bodily
injury coverage on aircraft is subdivided into public liability and passenger liability which are
separately insured and rated. A few years ago the aircraft liability policy contained no omnibus
clause but merely covered the named assured for damage due to the specific aircraft while being
flown by a named pilot. At the present time the insurance attaches to the specifically described
aircraft while being flown by a specifically approved pilot and if such conditions exist then the
insurance covers not only the named assured but also any person while riding in, any approved
pilot while operating or any person legally responsible for the operation of the aircraft provided
the operation is with the permission of the named assured. It will be noted that the pilot still has
to be approved, which is not the case in automobile insurance

. HULL AND CASUALTY RATES Each aviation risk is still rated on its own merits based on
information received by the underwriters in the application for insurance. Advisory rates have
been set up for the average risk falling within the classifications of private pleasure, industrial aid
or commercial. A majority of the aviation risks fall within these 84
AVIATION INSURANCE classes and the average advisory rate is quoted unless unusual
circumstances are present. The New York Insurance Department has permitted the Board of
Aviation Underwriters to file a rate range for each classification within which the advisory rates
fall and within which each quotation falls. This filing will be continued until sufficient
experience has been developed to permit the establishment of standard average rates. As aircraft
are not confined to any particular territory, there are no territorial differentials in rate with the
exception of windstorm insurance in Florida where the rates are loaded for coverage during the
hurricane season. For the coverages which depend on the flying hazard, that is, passenger
liability, public liability, property damage and crash, there is a differential in rate depending on
the experience of the pilot approved by the underwriters to fly the plane. The fact that the
experience of the pilot directly affects the flying hazard is amply confirmed by the latest Bureau
of Air Commerce figures for the period July to December 1937 which show that out of 1,075
accidents in all flying operations excluding scheduled airlines, 55.3% of the accidents were due
to pilot errors. It is interesting to observe that in scheduled air line operations where all the pilots
are experienced the figures for calendar year 1937 show that out of 50 accidents only 18.2%
were caused by pilot errors, the greatest percentage of accidents (25.4%) being caused by the
weather.

Abstract

The thesis in the first part analyses the major international conventions with respect
to liability exposure of airlines and aircraft operators performing international
flights. Emphasis will be laid on the transportation of passengers, baggage and
cargo and on the legal framework in place to award compensation for damages
caused to persons and property on the surface of the earth. The study continues
with an evaluation of natural hazards inherent to air transport and explains the
typical standard aviation insurance policies and the scope of cover for the hull of
the aircraft, for passengers and for third parties on the ground. Furthermore, an
overview will be given of the 'extended exclusion clauses for Weapons of Mass
Destruction (WMD)' commonly inserted in war risk insu rance policies as a result of
terrorist attacks.

grams in the field. 4.) Research Needs in the Aviation Field Skilled researchers are
needed in the field of aviation. Historically, these researchers have come hm other
disciplines, but there is a growing need for researchers who possess a broad
understanding of the aviation system. For example, the Federal Aviation
Administration plans to spend billions of dollars over the next several years on
NextGen development and capital costs. Skilled aviation researchers are needed to
support these research projects, and NextGen is but one illustration of a much
broader landscape of research needs within the aviation industry today. Demand
Recognizing this need, ERAU conducted a survey of its alumni in late 2007 to
determine the demand for a PhD. in the aviation field. The survey was conducted
online and on paper, and more than 2,300 responses were received (22% response
rate). 83% of those responding indicated that they would be interested in enrolling
in ERAU's PhD. program, and almost 70% indicated that they would prefer the
degree to be offered online. In addition, various aviation companies that were
contacted indicated enthusiastic support for the P"0V

1 .) Growth of Aviation Academic Promans Undergraduate degrees in programs such


as aeronautical science, aviation technology, aviation management, professional
pilot, aviation maintenance, and aviation electronics, have been offered for more
than fifty years. Currently, more than two hundred colleges and universities around
the world offer such degrees producing more than 5,000 graduates annually. At the
graduate degree level, universities have offered the Master's degree in programs
such as Aeronautics, Aeronautical Science, Aviation Safety, Aviation Management,
Aviation Administraton, and Aviation Technology since the mid 1970s. Embry-Riddle
JAAER, Winter 201 1 -9 9 Stolzer: The Rationale for Embry-Riddle Aeronautical
Universitys Ph.D. in Published by ERAU Scholarly Commons, 2011 Embry-Riddle
Aeronautical University's PhD. in Aviation Aeronautical University (ERAU) was the
first university to offer a master's degree in aviation, and has graduated more than
14,600 students hm master's level degrees since 1978.

1. Air Charter Service


2. Norse Air
Competitors 3. United Charter Service

Learning Objectives:-

Analyze the critical components of the different insurance contracts available to aircraft

operators

Understand the necessary processes for obtaining insurance cover

Identify the factors that an aircraft operator should take into consideration when

purchasing insurance cover


Comprehending the special features of claim settlement

Gain an understanding of the main conventions and protocols.

Gain an understanding of how hull and liability risks are insured

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