AVIATION INSURANCE

HISTORY
 Aviation Insurance was first introduced in the early years of
the 20th Century.
 The first aviation insurance policy was written by Lloyd's of
London in 1911.
 The company stopped writing aviation policies in 1912 after
bad weather and the resulting crashes at an air meet caused
losses on many of those first policies.
 The first aviation polices were underwritten by the marine
insurance underwriting community. The first specialist aviation
insurers emerged in 1924.
HISTORY
 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.
 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 .
WARSAW CONVENTION
 In 1929 the Warsaw convention was signed.
 The Warsaw System, which is in force in India by way of
Carriage by Air Act, 1972
 The convention was an agreement to establish terms,
conditions and limitations of liability of carrier for carriage by
air, this was the first recognition of the airline industry as we
know it today.

 In 1931, Captain Lamplugh, the British Aviation Insurance

Company's chief underwriter and principal surveyor, said of the
new industry: "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."
MONTREAL CONVENTION
 The Indian Government ratified “Montreal Convention
1999” in March 2009.
 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.
MONTREAL CONVENTION
 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 to baggage compensation is Rs.4,000
per passenger for hand baggage and Rs.450 per kg for
registered baggage .
MONTREAL CONVENTION
 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,
 place of issue of ticket
 principle place of business of the carrier
 the place of destination of the passenger
 the place of domicile of the carrier.

 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.
US Airways Fli
ght 1549
was written off
after ditching
into the
Hudson River

The crash of a Concorde,

Air France Flight 4590, at
Charles de Gaulle Internati
onal Airport
near Paris on 25 July 2000
was caused by FOD
Flameout of all
engines due to
blockage by
volcanic ash Site
Mount Galunggung,
West Java, Indonesia
of BOEING747

Damage caused to
MIG by crane
TYPES
HULL AVIATION INSURANCE
 Ground risk hull insurance not in motion

 Ground risk hull insurance in motion(taxiing)

 In –flight insurance

LIABILITY AVIATION COVERAGE

 Public liability policy
 Passenger liability policy
 Combined Single Limit(CSL)
GROUND RISK HULL INSURANCE NOT- IN MOTION(NIM)

 The entire aircraft, including all permanently attached

modifications, is considered the hull. As an example, if a
helicopter has a permanently attached camera pod, the
pod can be insured as a part of the hull.
 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.
 Most hull insurance includes a deductible to discourage
small or nuisance claims.
GROUND RISK HULL INSURANCE IN
MOTION (TAXIING)
 In-motion means if the aircraft’s engines are turning and
the aircraft is capable of moving under its own power.
 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 in
fact taxiing or attempting to take-off this coverage has
been discontinued by many insurance companies .
IN-FLIGHT INSURANCE

 In-flight is from the time that the aircraft begins its take-
off roll to when it has completed its landing roll.
 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 non-in-motion
coverage since most aircraft are damaged while in
motion.
PUBLIC LIABILITY INSURANCE
 This coverage, often referred to as third party liability covers aircraft
owners for damage that their aircraft does to third party property(PD),
such as houses, cars, crops, airport facilities and other aircraft struck
in a collision and Bodily injury(BD).
 It does not provide coverage for damage to the insured aircraft itself
or coverage for passengers injured on the insured aircraft.
 The liability limits are defined on the coverage summary page (the
declarations page) of the aircraft policy.
 The liability limits state the amount of liability coverage that is
provided for bodily injury(BI) and for property damage (PD)
 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.
PASSENGER LIABILITY INSURANCE

 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.
COMBINED SINGLE LIMIT (CSL)

 CSL coverage combines public liability and passenger

liability coverage into a single coverage with a single overall
limit per accident.
 An example would be $1million CSL including passengers.

 If the passenger liability is written at a lower or restricted

limit, you may see $1 million CSL excluding passengers,
passenger BI $100,000 per passenger seat.
 Some less desirable policies may offer $1 million CSL (BI
and PD) restricted to $100,000 per person.
 Note the huge difference between a per passenger seat
restriction and a per person restriction. The per person
restriction could be a passenger or person outside the aircraft.
VALUATION
 “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.  There
is no such thing as "replacement value" coverage in an aircraft policy.
For that reason, when you negotiate the terms of your policy (or your
renewal) you should insist on a hull value limit that will allow you to
replace the aircraft in TODAY'S market”
VALUATION
 This differs from the automobile world, where an
automobile is usually written on an actual cash
value(ACV) policy form.
 Following a physical damage claim to an automobile, the
claims adjuster and the owner of the automobile debate
and often disagree on the value of the damaged auto. The
agreed value aircraft policy plainly states the value that
will be used in settling the claim; no one is confused and
there is no room for disagreement. The stated amount is
the value and that is that.
GEOGRAPHICAL LIMITS
 Territorial limitations are defined in every policy. This
states where your aircraft will be covered geographically.
Some policies as a matter of form will limit the territory
of operation to the 48 contiguous states, along with
Canada and Mexico. Some state the Western
Hemisphere and some are so broad they include
“anywhere in the world.”
 The point here is that you know what your policy says
and operate within that geographical boundary. If you
have a loss outside your designated territory of
operation, your coverage may be void.
OPW
 Often referred to as an approved pilot, your policy will
either refer to someone whom the underwriter authorizes
to fly the insured aircraft by name or named pilot or by
open pilot warranty (OPW).
 If it is a named pilot, the underwriter will specify by
name a pilot who is approved to fly the aircraft. If it is by
“open pilot warranty,” the underwriter issues a set of
standards or requirements for a pilot. Anyone meeting
the open pilot warranty is approved to fly an insured
aircraft.
EXAMPLE
 A Cessna 421 while landing had an apparent problem with the
brakes and the aircraft subsequently struck a taxiway sign causing
$35,000 worth of damage to the 421. As part of the adjustor’s
routine investigation, the pilot was asked to document the incident
with a statement , aircraft logbooks and pilot credentials. The
conditions included successful completion of approved Cessna 421
training within the preceding 12months. When the pilot could not
produce evidence of the training (he stated he forgot it was
required), the insurance company prepared to deny the claim. The
moral of the story: one of the most common grounds for coverage
denials is a pilot not meeting the policy requirements!
PURPOSE OF USE
 Purpose of use is a very important term in that it defines
what your aircraft can be used for.
 On very broad corporate aircraft policies, it is not
unusual to see the purpose of use defined as “any use of
the named insured.”
 Obviously, the underwriter has engineered the risk and
is comfortable the use will be within acceptable
parameters.
PURPOSE OF USE
Aviation risks have been classified into five main classes according to the use of the
aircraft. These classes are:
Private Pleasure
 All planes used for private pleasure and personal business purposes exclusively.

Industrial Aid(corporate jets)

 Planes used for transportation of executives and employees and for sales
promotion purposes and owned by a business organization(Corporate jets) not
otherwise connected with the aviation business.
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.
Aircraft and/or Aircraft Engine Manufacturing
Scheduled Air Lines
 Planes carrying passengers, mail and cargo on a regular schedule.
DEDUCTIBLES
 Deductibles are usually specified on the declarations
pages of the policy.
 The deductible is that amount of money that the insured
contributes toward a loss before the insurance company
will pay the balance of the claim.ie loss retained by the
insured.
 In -flight deductibles

 Not –in motion deductibles

 In-motion deductibles

 Some underwriters require no deductible at all. These are

referred to as “nil” deductibles
COVERAGES
 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 60 days after take-off is deemed to
have been lost by reason of one of the above flying perils.
COVERAGES
 Windstorm.--Damage to the aircraft by Tornado, Cyclone
or Windstorm except while the aircraft is in flight or
taxiing subsequent thereto.
 Land Damage--Damage to the aircraft while on land,
but not in flight or taxiing, caused by fire, theft,
vandalism(wilful destruction by people), flood,
mudslides, animal damage, wind or hailstorms, hangar
collapse 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).
 Bird Aircraft strike hazard
COVERAGES
 Theft, Robbery and Pilferage--Theft, robbery and
pilferage , except by any person in Assured's household
or employee.
 Fire damage
COVERAGES
 Foreign Object Damage (FOD) is damage caused by
Foreign Object Debris (also abbreviated FOD), i.e. a
substance, debris or article alien to a vehicle or system that
has potential to cause damage.
 FOD losses cost more than $ 4 billion a year to the aerospace
industry.
 All aircraft occasionally lose small metal or carbon parts during
takeoff and landing. These parts remain on the runway and can
cause damage to tires of other aircraft, hit the windshield, or
get sucked up into an engine. Although airport ground crews
regularly clean up runways, the crash of Air France Flight 4590
demonstrated that accidents can still occur: in that case, the
crash was said to have been caused by debris left by a flight that
had departed only four minutes earlier.
EXCLUSIONS

 Pilots and Use – There is no coverage unless the aircraft is being

operated by approved pilots and is being used as allowed by the
policy.
 include illegal use of an aircraft;
 using an aircraft for purposes other than that described in the
policy;
 piloting the aircraft by someone not named in the policy;
 operating an aircraft outside stipulated geographical boundaries

 There is no liability coverage for injury to YOU, the Named

Insured. Liability coverage protects you against claims from other
people in the event that you injure them or damage their property.
EXCLUSIONS
 There is no coverage for bodily injury to your
employees. If your employees are injured while they are
working in their capacity as your employee, Worker’s
Compensation Insurance may be the sole remedy for
their injury.
 There is no coverage for intentional losses. If you decide
to destroy your airplane on purpose – no coverage.
 There is no coverage for damage caused by aircraft due
to noise or pollution generated by the airplane.
EXCLUSIONS
 War Exclusions
War exclusions have been brought to the forefront of our thinking
since the terrorist attacks of September 11, 2001 involving civil
aircraft, but war risks have been excluded from insurance policies
since the 1960’s
 War, martial law, or coup.

 Hostile detonation of atomic or nuclear weapons.

 Strikes or riots.

 Terrorist acts

 Sabotage.

 Confiscation or seizure by any government

 Hi-Jacking

Note: War exclusions can be “written back” on most policies for

additional premium .
EXCLUSIONS
 Losses caused by mechanical or electrical breakdown or
failure, deterioration or freezing are excluded. Also
excluded – losses to any part that is designed to wear out
(tires, brakes, fading of paint) and losses due to
mechanical breakdown of the engine or any of its
components.
 This exclusion does not apply to “downstream
damage” from these failures or breakdowns. The
following are a few examples to help illustrate this point
EXAMPLES
 Situation # 1 Let’s assume that you are in cruise flight
in your Piper Cherokee. Due to some latent defect,
the engine loses oil pressure, begins to overheat and
then seizes and stops operating. You are within
gliding distance of the nearest airport and you make
an emergency landing without further damage to the
aircraft. In this situation, there is nothing for the
insurance company to pay. The only damage is due to
a mechanical failure of the engine - and that damage
is excluded by the wear and tear exclusion .
EXAMPLES
 Situation # 2 Let’s change the circumstances a little.
Your Piper Cherokee begins to lose oil pressure, then
parts within the engine suddenly break and fly free of
the engine compartment. Metal engine parts tear
holes in the cowling and impact the leading edge of
the wing. You make an emergency landing at a
nearby airport. Now you have a covered loss. The
mechanical breakdown and damage to the engine is
still not covered, but the “downstream damage” to
the cowling and the wing is covered.
EXAMPLES
 Situation # 3 Rather than a safe landing at an airport,
let’s assume that you crash-land the Cherokee off
airport after the engine fails. The landing results in
significant damage to the airplane and perhaps
someone is hurt. Again, the wear and tear exclusion
precludes payment for the mechanical breakdown of
the engine itself. But, the damage to the aircraft
incurred after the engine failure or any injuries that
result from the accident are covered.
 In all of these situations, the actual damage to the wear
and tear item (engine) is not covered. The company will
not pay to restore your engine to working order when the
aircraft is repaired .
EXCLUSIONS
 Radiation – If the aircraft is contaminated by radiation
for any reason, there is no coverage.
 Y2K Date Changes – Introduced in the late 1990’s, this
exclusion appeared by endorsement to exclude coverage
for losses arising from the failure of any aircraft system
to recognize the rollover of the date to 2000. Although
probably not much of a risk as of this writing, the
exclusion still appears on most policies.
 Embezzlement– This is similar to theft, which is covered,
but differs in that it involves the taking or misuse of the
aircraft by an authorized user of the airplane.
CURRENT SCENARIO
 All of the companies (United States Aviation Insurance
GroupUSAIG, Global-Aerospace, AIG Aviation,
W.Brown and Assoc., Phoenix Aviation Managers and
USSIC)are the biggest Insurers on aviation growth path.
 Indian Insurers have come a long way in developing the
market capacity for aviation insurance business
 Insurers have kept pace with the growing demand from
buyers in India.
 Newer risks
 Many new buyers have entered the insurance market with
requirement for different types of products.
 Apart from traditional airline and aircraft related insurances,
Insurers are now covering different verticals of aviation
industry ranging from airports to aircraft manufacturers with
bigger risks appetite .
 Market Potential For 2008, Aviations direct premium
income in India is circa INR 3,750 million
 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
 In addition, 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.
Fig: FOD
FOD
 Aircraft parts, rocks, broken pavement, ramp equipment,
and vehicle parts
 Parts from ground vehicles

 Garbage, maintenance tools, etc. mistakenly or

purposely deposited on tarmac and/or runway surfaces.
 Hail: can break windshields and damage or stop engines.

 Ice on the wings, propellers, or engine intakes

 Dust or ash clogging the air intakes (as in sandstorms in

desert operating conditions or ash clouds in
volcanic eruptions).
INSURING AIRCRAFT –
UNDERWRITING CONSIDERATIONS

 Is the aircraft safe to operate? Fortunately, FAA

requirements and pilots’ self-preservation instincts mean
that the answer to this question is usually “yes.” But,
unseen deterioration and unknown maintenance issues
become more likely as an airplane ages.
 In the event of damage, can the aircraft be repaired
within a reasonable timeframe and at a reasonable cost?
 Is pilot training available?

 Does the low purchase price(old aircraft) invite owners

to get in over their heads.
INSURED'S RESPONSIBILITIES

1. Promptly notify the insurance company's claim

department. This requirement can be facilitated by
contacting your insurance agent.
2. Cooperate with the insurance company and upon
request, assist them in making settlements and in
enforcing any of their rights of recovery or indemnity
against any person or organization who may be liable to
you with respect to the insurance afforded in your policy.
INSURED'S RESPONSIBILITIES
3. Do not, except at your own cost, voluntarily make any payment,
assume any obligation or incur any expenses other than first aid to
others at the time of the accident.
4. Allow the insurance company to view the damage before repair or
disposition.
5. Give the company a proof of loss statement within 60 days of the
loss.
6. Make your records available to the adjuster proving the amount of
the loss, pilot qualifications, etc.
7. Protect the aircraft from any further loss or damage.
8. Do all things necessary to transfer title to any salvage, including
your aircraft if it is a total loss to the insurance company.
9. In the event of theft or robbery, you must promptly notify the
police.
WHAT IF I DON'T AGREE WITH THE AMOUNT
THE INSURANCE COMPANY IS WILLING TO
PAY?

 If an agreement cannot be reached on the amount of

loss, both you and the insurance company have the right
to settle the dispute through arbitration. In general,
either party must notify the other in writing that the
dispute will be submitted for arbitration.