Professional Documents
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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]
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]
Landing gear that can be lowered even after loss of power and hydraulics
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.
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
2017 88 8
(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.
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
Learning Objectives:-
Analyze the critical components of the different insurance contracts available to aircraft
operators
Identify the factors that an aircraft operator should take into consideration when