(https://riskandinsurance.

com)

8 Critical Risks Facing the Aviation Industry

Commercial airlines will have to stay ahead of these risks in
order to keep up with demand and stay profitable.
By: Katie Dwyer (https://riskandinsurance.com/author/katie-dwyer/) | January 29, 2019

Topics: Aviation (https://riskandinsurance.com/category/sector-focus-parent/aviation/) | Climate Change

(https://riskandinsurance.com/category/risksrm/climate-change/) | Crisis Management
(https://riskandinsurance.com/category/risksrm/crisis-response/) | Critical Risks
(https://riskandinsurance.com/category/critical-risks/) | Cyber Risks
(https://riskandinsurance.com/category/risksrm/cyber/) | Emerging Risks
(https://riskandinsurance.com/category/risksrm/emerging-risks/)

According to Statista (https://www.statista.com/topics/1707/air-transportation/), U.S. commercial

airlines carried more than four billion passengers and generated $534 billion in global revenue in 2017.
Demand for air travel is projected to grow, but commercial airlines will have to contend with these
 risks, many of which continue to emerge and evolve, in order to keep up and stay profitable.

1) System Failure and

(https://riskandinsurance.com) Aging Technology Infrastructure
An unfortunate number of examples demonstrate the far-reaching effects of a major airline’s system
outage. In late January of 2017, Delta experienced a network interruption that lead to at least 270 flight
cancellations and many more delays. It also missed out on additional bookings since the issue affected
its website and mobile apps.

This was after Delta experienced an even more significant outage in August 2016, which was the result
of an equipment fire. In that case, an estimated 2,300 flights were cancelled, costing the airline $150
million in lost revenue.

A month before that, Southwest Airlines experienced a router failure that caused cascading
malfunctions across its systems, resulting in 2,000 cancelled flights
(https://money.cnn.com/2017/01/29/news/delta-system-outage/index.html), which cost the company
between $54 million and $82 million in lost revenue and increased costs. It’s estimated Southwest lost
out on $5 million to $10 million (https://www.cbsnews.com/news/southwest-airlines-struggles-to-
recover-from-massive-computer-outage/) in ticket sales because the glitch disabled online booking
applications.

United Airlines was also forced to ground all domestic flights

(https://www.nbcnews.com/storyline/airplane-mode/all-united-airlines-domestic-flights-grounded-
computer-outage-n710596) for more than two hours due to a computer outage in January 2017. FAA
officials said that the Aircraft Communications Addressing and Reporting System (ACARS) had issues
with low bandwidth.

These events highlight the risk of trying to build new programming on top of outdated infrastructure.
Like in many industries, the underlying technology supporting many airlines’ operations is decades old
and in dire need of an overhaul, but the costs associated with doing so have prevented much-needed
updates.

2) Pilot Shortage
Increased demand coupled with a shrinking pool of qualified pilots is driving an ongoing pilot shortage
(http://aviationweek.com/nbaa-2018/pilot-shortage-real-and-getting-worse). According to Boeing’s
2018 Pilot & Technician Outlook, the aviation sector will need 790,000 pilots over the next two
decades and 754,000 new maintenance technicians, thanks to an anticipated influx of new aircraft. At
the same time, more than 42 percent of airline pilots will retire over the next 10 years, according to
market research firm Cowen & Company. Baby boomers currently comprise about half of the pilot
workforce (https://www.forbes.com/sites/marisagarcia/2018/07/27/a-perfect-storm-pilot-shortage-
threatens-global-aviation-even-private-jets/#614b1d671549).

(https://ss1.zedo.com/ads2/c?
a=2975750;g=0;c=534000672;i=0;x=3840;n=534;s=8;k=https://www.linkedin.com/company/risk-insurance)
 Private sector aviation companies tend to recruit highly-qualified former Air Force pilots, but even the
Air Force is short by about 2,000 pilots as of the end of 2018.
(https://riskandinsurance.com)
Private and business aviation are suffering the most, as commercial airlines can typically offer more
competitive salaries and more regular schedules.

3) Climate Change
The ability to keep flights running on time is highly dependent on the weather. Historically, airlines
could anticipate some cancellations based on seasonality. It’s reasonable to expect some flights to
Florida to be cancelled in the height of hurricane season, or trips to the Northeast to be hindered by
snowstorms in the middle winter. Airlines could plan for such events and prepare to absorb the cost.
But the effects of climate change have made planning an almost futile exercise.

(https://riskandinsurance.com/wp-content/uploads/2019/01/2018GlobalTempReview_Bars_F_en_title_sm.jpg)
Source: NASA GISS & NOAA NCEI global temperature anomalies averaged and adjusted to early industrial baseline.

Global warming has given rise to more frequent and more severe storms, which means more and
longer interruptions for travelers. Extreme heat is also an issue. When the air is too hot, pilots cannot
achieve enough lift to take off safely. Over the summer of 2017, a string of 120-plus degree days in
Phoenix led one airline to cancel more than 40 flights. According to Climate Central
(https://www.climatecentral.org/gallery/graphics/the-10-hottest-global-years-on-record), the five
warmest years on record have all occurred since 2010. Heat will continue to be a factor keeping planes
on the ground.
 More volatile temperature changes and weather patterns are also giving rise to more turbulence. A
study by researchers at the University of Reading
(https://riskandinsurance.com)
(https://agupubs.onlinelibrary.wiley.com/doi/full/10.1002/2017GL074618) in the UK, the volume of
severe turbulence will double in airspace over North America, the North Pacific, and Europe between
2050 to 2080. Over the North Atlantic in particular, severe turbulent will become as common as
moderate turbulence today.

That could mean an increased need to reroute flights, and a higher frequency of passenger and crew
injury.

Given that the aviation sector accounts for 2 to 5 percent of global emissions
(https://www.yaleclimateconnections.org/2017/12/piloting-aviation-industry-through-a-changing-
climate/), airlines are also under pressure to find ways to become more fuel-efficient and
environmentally friendly.

4) Oil Price Volatility

(https://riskandinsurance.com/wp-content/uploads/2019/01/crude-oil-price-history-chart-2019-01-29-
macrotrends.png)
Price Per Barrel of Oil. Source: macrotrends.

Fuel accounts for about 30 percent of costs in aviation. Profit margins can quickly erode when oil
prices soar. In the past 10 years, the price per barrel fell from a high of $126 in 2011 to a low of just $36
in 2016. As of the end of January 2019, the price sits at $52 per barrel. While the cyclical nature of oil
prices is not a new risk, rapid fluctuations have become more pronounced in the past several decades,
and will continue to be a difficult exposure to manage.
 It is estimated that just a $1 increase per barrel of oil can cost the global airline industry an additional
$1 billion a year. According to The Motley Fool (https://www.fool.sg/2018/01/18/3-risks-associated-with-
(https://riskandinsurance.com)
the-airline-industry/), “That is a significant amount of risk that is outside the control of an individual
airline company. Even hedging strategies cannot fully compensate their vulnerability to sustained
periods of high oil prices.”

5) Reputation Damage
It all began with the case of David Dao, a Kentucky doctor aboard a United Airlines flight who was
violently removed when the airline realized it had overbooked and needed to “bump” some passengers,
but no one volunteered. Images of a bloodied Dr. Dao being dragged down the plane’s narrow aisle
spread across social media like wildfire, and the unapologetic reaction from the company’s CEO Oscar
Munoz didn’t help.

United’s market value reportedly deteriorated by about $250 million because of the incident.

Since then, there have been countless similar episodes where confrontations between passengers and
crew or forcible removals are filmed and posted online for the world to see. In some cases, crew
members are accused of acting brashly or rudely, but in others, they’re motivations in confronting
passengers have been dubbed racist (https://www.wfla.com/news/florida/family-kicked-off-flight-out-
of-florida-after-complaints-about-body-odor/1728497564).

These incidents underline the importance of having a clear communications response plan in place.
Incidents can’t always be avoided, but the way a company responds can determine whether the story
disappears in a day or causes longer term impact to the bottom line.

6) Economic Recession
In 2008 and 2009, five of the nine largest U.S. airlines reported losses totaling nearly $4 billion. When
a shrinking economy forces individuals and businesses to tighten up their budgets, travel is typically at
the top of the list of expenses to cut.

In September 2008, the top seven airlines in the U.S. averaged a 9.47 drop in domestic passenger miles
traveled compared with September 2007. Internationally, airfreight volumes fell by about 13 percent.

The inability to predict when a recession will occur or how long it will last presents a constant
uninsurable risk to the commercial aviation sector.

7) Government Shutdown
The impact of a government shutdown likely was never a top concern for airline risk managers before,
but the recent 35-day shutdown — the longest in history — made clear that a non-functioning federal
government has big implications for airline safety, efficiency and profitability
(https://www.usatoday.com/story/travel/news/2019/01/24/shutdowns-impact-air-safety-airlines-worry-
long-term-impact/2670281002/).

Southwest Airlines reported it lost up to $15 million during the shutdown in the month of January
2019. Delta said it cost them 25 million in lost revenue.
 This is due to fewer government employees and contractors taking business trips, and fewer TSA
agents and air traffic controllers available to handle the existing traffic. Facing weeks without pay,
(https://riskandinsurance.com)
these workers called out sick in record numbers. Citing financial limitations, as many as 10 percent of
TSA agents used sick days (https://www.usatoday.com/story/news/nation/2019/01/21/tsa-government-
shutdown-workers-call-in-sick/2636495002/) during the shutdown. Absence of air traffic controllers
lead to delays and cancellations.

Among La Guardia, Kennedy International and Newark Liberty International airports, there were 87
cancellations and more than 1100 delays.

8) Decreasing Insurance Capacity

A 2018 aerospace market update (https://www.willistowerswatson.com/en/insights/2018/04/aerospace-
insurance-marketplace-realities) issued by Willis Towers Watson predicted that a hardening market
was likely to continue. After years of soft market conditions, waning profitability has lead some
carriers to exit the market completely.

According to WTW, “2017 was one of the costliest years on record for the broader property and
casualty (P&C) market, which will have an effect on many insurers’ reinsurance programs as they
renew their treaties in 2018.” Claims are also becoming more expensive (https://www.jlt.com/what-we-
do/our-specialisms/aerospace/aviation-insights/general-aviation-insurance-market-update) due to
increasing cost of repair of newer aircraft and rising jury verdict and settlement amounts.

Attritional claims now comprise almost 70 percent of all airline claims. “This means underwriters that
write the entire portfolio will not make a profit,” the update said. “Several underwriters have already
ceased writing airline business until premiums reach a more sustainable level. We will also likely see
some mergers and acquisitions of some P&C underwriters. We should expect to see a slight upward
trend in pricing for 2018, especially for airlines with losses. The market will harden much quicker
should there be a significant loss.” &

Katie Dwyer is a freelance editor and writer based out of Philadelphia. She can be reached at riskletters@lrp.com.

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2014 Power Broker

Private Equity
(https://riskandinsurance.com)
Private Equity

(https://riskandinsurance.com/2014pb-private-equity/)

Risk Insider: Jeff Hallman

Has Anyone Noticed That Our Underwriter Is Missing?

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Sponsored: Helmsman Management Services

How to Humanize Workers Comp and Make Worker

Advocacy Real
Simplifying and humanizing the workers comp process
benefits injured workers and employers alike, but many aren’t
doing enough to put workers first. Here’s what a true
advocacy approach demands.
 By: Helmsman Management Services (https://riskandinsurance.com/author/helmsman/) | August 1, 2019

(https://riskandinsurance.com)

The concept of injured worker advocacy is not new in workers comp.

“We strongly believe that taking a more holistic and human approach produces better claim outcomes
for both injured workers and their employers,” said David Dwortz, President, Helmsman Management
Services.

And with the strong economy and lack of skilled workers, this approach to worker advocacy is even
more critical. “In the current business climate, there is a fight for talent. For businesses, there is
strategic advantage in attracting and retaining top talent, and that includes those who have been
injured on the job. Helping injured workers recover and return to work is more important than ever,”
said Dwortz.

And yet, advocacy remains difficult to implement because it runs counter to the traditional workers
comp model, which is typically task-oriented and lacks transparency.

“Claims begin with an investigation, which right off the bat sets a negative tone,” said Wesley Hyatt,
Senior Vice President, Workers Compensation Claims, Helmsman Management Services LLC. “In the
traditional model where only the compensable injury matters, injured workers can often feel as though
no one truly cares about their well-being.”
 To truly act as an advocate for injured workers, carriers and TPAs must take a deeper dive into their
processes and rethink how to make every touch point with an injured worker an opportunity to create
(https://riskandinsurance.com)
a positive experience.

Here are the hallmarks of true injured worker advocacy:

1. Eliminating Jargon and Speaking Simply to Avoid Confusion

Healthcare can be confusing enough on its own, but workers comp adds another layer of complexity.

“Getting injured already adds a lot of stress to a person’s life, and the workers comp process often
makes it worse because it’s so confusing to navigate. It’s our obligation to make it as simple as
possible, and we decided to start by explaining things in a way that injured workers can more easily
understand,” Hyatt said.

Helmsman began reviewing conversations between claims specialists and injured workers to identify
common terms and phrases that create confusion.

Phrases like “average weekly wage,” “IME appointment,” and “utilization review” may mean something
to claims specialists, but only spark more questions for injured workers. They want answers to
questions like: ‘what do I have to do to get better?’ and ‘how will I be paid while I’m out of work?’
Responding with simple and straightforward language removes some of the uncertainty that often
comes with a workplace injury.

As one injured delivery driver shared, “After my injury, I was so nervous. What should I do? Who can I
ask? What are my benefits? But [my claims specialist] was a saving grace. She walked me through the
process and responded to my every question in rapid time. I felt really cared for.”

2. Making Convenience a Priority

 An injured worker may not be able to take a claims specialist’s call in the middle of the day or may not
have transportation to a medical appointment. Games of phone tag and missed appointments can
(https://riskandinsurance.com)
delay recovery and increase frustration.

“To make the claims experience as easy as possible for injured workers, we need to engage with them
in ways that are most convenient for them. That means incorporating technologies that they want to
use,” said Dwortz.

For example, Helmsman sends each injured worker a personalized video message that explains the
workers comp process from start to finish. The injured worker can watch the video on their own time,
refer to it as needed, and get answers to many of their initial questions.

“We’re also piloting a ridesharing program to help injured workers get to their medical appointments,”
said Hyatt. “They order the ride through an app on their smart phone just as they would for any other
occasion and we cover the payment. Since the injured worker is using a familiar service, it’s one less
thing for them to worry about.”

3. Anticipating Needs to Solve Problems Before They Start

Wesley Hyatt, Senior Vice President,

Workers Compensation Claims,
Helmsman Management Services, LLC

Anticipating an injured worker’s needs demonstrates that his or her wellbeing is a priority, and that the
claims specialist is thinking about more than just the next item on the checklist.

When eight tornadoes touched down over the span of 12 days in May, for example, the Helmsman
claims team reached out to workers living in the paths of those storms to offer help with accessing
prescriptions, medical treatment, and claims payments.

“Our people took that initiative on their own—and that demonstrates a real shift in mindset. The focus
first and foremost is on helping people. Most of the people we contacted were surprised and touched
by the effort taken to make sure they were okay,” said Hyatt.
 Proactive outreach can also include simple check-ins. Regular contact to see how an injured worker is
doing reminds them that they are more than a claim or compensable injury — their wellbeing is truly a
(https://riskandinsurance.com)
priority.

4. Employer Engagement

David Dwortz, President, Helmsman

Management Services, LLC

Regular communication means even more when it’s coming from the injured worker’s own manager.

The employer plays a critical role in injured worker advocacy because a significant source of fear for
injured workers comes from wondering whether their supervisors and colleagues think poorly of them,
and whether their jobs will still be there for them in the end.

“Advocating for injured workers works best when the employer shares that same mission. For an
injured worker, there’s nothing quite like having their manager express their support and a desire to
have them back to work as soon as possible,” Dwortz said.

One company, for example, sends injured workers ‘get well soon’ cards post-injury. Others arrange
additional services to help make the worker’s life whole while they recover, such as offering counseling
through their own employee assistance programs and volunteer opportunities at local nonprofits
through Helmsman’s transitional return-to-work program.

Empathy is at the Center of Everything

Investing in advocacy requires giving front-line claims staff the tools and knowledge they need to be
effective communicators.

“The training can’t just be about the technical and medical components. We must train people on how
to build that empathetic connection. Developing those soft skills is an ongoing process,” Hyatt said.
 Nurses, for example, should be able to recognize and address an injured worker’s anxieties. Skills like
motivational interviewing and therapeutic listening help get to the root of the worker’s emotional or
(https://riskandinsurance.com)
psychological distress. Incorporating those factors into the care plan is critical for a smooth recovery
and faster return to work.

It also benefits claims staff themselves. Helping people – rather than closing claims – adds meaning to
the work and motivates them to do what’s best for injured workers.

Taking Advocacy to the Next Level

Plenty of data shows that treating the whole person reduces claim duration, medical and indemnity
costs, litigation rates, and lost productivity for the employer. But improving these metrics should not
be at the heart of what drives advocacy for injured workers.

Rather, they are a byproduct. The most important outcome is a happy and healthy worker who returns
to full functionality and normalcy as quickly as possible, and who shares the feeling of this injured
wholesale worker:

“I can’t thank you enough for the outstanding help that has been given to me over the last few months.
This journey that life is taking me on has been made a lot easier with your prompt and compassionate
service that has been and still continues to be given to me.”

Advocacy has always been at the core of Helmsman’s culture, and it requires a continuous effort to
keep injured workers at the center of the story.

“Advocacy has always been in our DNA, and now we’re taking it to the next level. We are shifting the
mindset from ‘How do I get this claim closed?’ to ‘How do I help this person?’ It’s a rewarding journey
for everyone involved in the process,” Dwortz said.

To learn more, visit https://helmsmantpa.com/ (https://ss1.zedo.com/ads2/c?

a=3015822;g=0;c=534001417;i=0;x=3840;n=534;s=8;k=https://helmsmantpa.com/).

Helmsman Management Services (HMS) helps better control the total cost of risk by delivering superior
outcomes for workers compensation, general liability and commercial auto claims. The third party claims
administrator – a member of Liberty Mutual Insurance – delivers better outcomes by blending the strength and
innovation of a major carrier with the flexibility of an independent TPA.

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