THE BINDER | Vol. 46 No. 3 | Summer 2021

VOL. 46 NO. 3 — SUMMER 2021

Clearing Skies Ahead

AIA Plans for the Future Through the Fence

Venturing Outside the Airport Gates Aviation Risk

Returning to Normal Reveals Unique Challenges AIA 2022

Nashville, Here We Come!

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table of contents

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PRESIDENT’S MESSAGE

ATTORNEY DIVISION

clearing skies ahead

Is it Okay to Come Out Now?

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nashville Conference

YOUNG PROFESSIONALS SPOTLIGHT

save the date!

GAME ON!

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28 committee update

agent / broker division

an update from the aia education committee chair

tHROUGH THE FENCE

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WHERE ARE THEY NOW?

REINSURANCE DIVISION

JOHN HOWARD

Long-COVID Syndrome for Airlines?

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CLAIMS DIVISION

board of directors

aviation Risk — The Return to Normal Operations Poses Some Novel Challenges

EDITOR

KIM ROSENLOF Aerolink Incorporated

The ideas and opinions expressed by authors of articles published in The Binder are wholly their own and do not necessarily represent those of the Aviation Insurance Association.

The articles are not provided as legal advice.

www.aiaweb.org

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Published by the Aviation Insurance Association 2365 Harrodsburg Road Suite A325 Lexington, KY 40504

PRESIDENT’S MESSAGE

CLEARING SKIES AHEAD GREG STERLING // SENIOR VICE PRESIDENT, AIG AEROSPACE

As I begin my first message as president of our association, I’d like to first offer my heartfelt thanks to outgoing AIA President Jim Gardner for his incredible work over the past two years — a time of unprecedented challenge not only to our industry but to our world. Under Jim’s leadership, our association successfully overcame the impact of the pandemic — including the unfortunate but necessary cancellation of two annual conferences. He also oversaw the dynamic shift to online offerings of our key educational programs and services. I feel truly humbled as I now “stand on the shoulders of giants” like Mr. Gardner and our other distinguished past presidents.

I will strive to be a good steward of the proud legacy they now entrust to me.

Together we’re delighted to welcome our newest directors and Board members: Andy Trundle as International Director, David Watts, International Director-at-Large, Michael McGrory as Director of Attorneys, Wes Collier as Director of Underwriters, and David Gourgues as Director-Elect of Claims. Rounding out your Board of Directors is David Hampson for Agents and Brokers, Eric Weidner for Claims, and Walter Voigts-von Foster for Reinsurance. Chris Arnold and Nicole Stout have graciously agreed to continue to serve as Directors-at-Large.

Finally, our sincere thanks for a job well done to our departing directors: Bob Williams (Attorneys), Belinda Bryce (International/Canada), and Jeff Tippins (Underwriters). Together these professionals — past and present — work to ensure that the voices and concerns of the many diverse constituencies of the AIA are heard and served.

Lucky for me, coordinating the many activities and services of your association is absolutely a “Team Flight Crew” effort and I am blessed to be surrounded by some of the best and brightest in our business. Your AIA Executive Committee is rounded out

by Chris Morin as our new vice president, Luke Uithoven who continues in his duties as treasurer, and former International Director Ian Wrigglesworth as our new secretary.

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As Jim previously advised, we’ve also welcomed Mary Gratzer as our new executive director. Mary and her team have wasted no time in getting down to the important work of coordinating AIA events, programs, and services. Their support has been critical in delivering value

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to the membership and in planning our fall golf outing in Atlanta as well as our muchawaited return to a live 2022 conference in Nashville, TN!

This work begins and ends with a focus on you — the AIA member. Part of the AIA’s role as “the voice of aviation insurance” is to coordinate with other industry groups to deliver the best information possible to our members. In this effort the AIA and GAMA recently discussed the topic of electrically powered aircraft and how to best provide our members with the latest on this emerging technology. By the time you read this you’ve likely already received a

I titled this month’s President’s Message “Clearing Skies Ahead” for good reason.

First, I wanted to acknowledge the tremendous work done by so many in successfully navigating the AIA through the “turbulence” brought about by the pandemic. I also wanted to highlight the

hope and excitement I think we are feeling now that things are improving a bit. Most importantly, however, I wanted to signal that, even with “clearing skies,” we’ve not “landed” yet. The flight continues, and your AIA Board and I are committed to the work ahead in delivering membership value to you and driving the association forward to continued success.

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membership survey designed to gather your specific concerns and informational needs.

Based on results of the survey, GAMA will create an informative briefing for an upcoming edition of The BINDER to assist our members in understanding how this new technology will affect their individual professional roles in the aviation insurance industry.

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We are also pleased to continue of tradition of presenting valuable forums designed to help members stay informed on the ever-changing landscape of our industry.

The Insurer Focus Series — inspired by the popular “Queuing Up at AIA” event — provides an opportunity for members to hear directly from various member underwriting firms where they can provide an update on changes, challenges in the current marketplace, and address AIA member questions.

to join us at our first in-person event and reception in nearly two years — the AIA Open — to be held at Bear’s Best in Atlanta on September 20. We look forward to seeing you, to getting reacquainted, and celebrating a bit.

And even if you’re unable to join us in Atlanta, please be certain to mark your calendars now for April 28 to May 2, 2022, when the AIA will gather in “full force and effect” at the flagship J.W. Marriott hotel in Nashville, TN, for our first convention in three years! Your AIA team is planning an exciting program for Nashville filled with the very best in speakers, events, and educational opportunities. In short, just what you’ve come to expect from the best event in aviation insurance!

We’re also looking at new ways to structure our membership offerings to drive value to all members, but especially those beginning their aviation insurance careers. Our Young Professionals initiative continues to provide education, mentoring, and growth opportunities for the next generation of leaders in our industry. I’m pleased to say that this membership category saw significant growth in 2021.

Until we see you (hopefully soon), the work and the “flight” will continue even as we welcome and celebrate the “Clearing Skies Ahead.”

We are also developing expanded membership tiers designed to drive value to and acknowledge the foundational role played by our many AIA corporate partners. Watch for more on this coming soon. Finally, we are giving your AIA website a much needed “facelift” with a more modern look and feel, expanded functionality, and value-added features of benefit to all members.

Tailwinds,

Greg Sterling is Senior Vice President and Product Line Manager for Light Aircraft and US Airports with AIG Aerospace. An instrument-rated Private pilot, his aviation insurance career spans more than thirty-five years in various roles. He assumed the position of AIA President in 2021.

But even as exciting as the new website will be, I for one have grown a bit weary of spending my days looking at a computer screen. That’s why I hope you’ll be able

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save the date

nashville 2022 aia in the music city // APRIL 28–MAY 2 We could Offsite golf not be more tournament and sporting clays excited to host the 2022 And the AIA Annual opportunity Conference to learn from in beautiful some of the Nashville, TN, most successful aviation on April 28– insurance May 2! From professionals in amazing food the industry. to world-class Photo credit: Jake Matthews varieties of music, Nashville is one of the most up-andThe stunning JW Marriott in downtown coming cities in the US. Nashville will host the primary conference events, including exhibits, breakout sessions, Our annual conference has been, and keynote presentations, and continued always will be, at the very heart of the AIA. educational offerings.

For that reason, the 2022 conference will include many of the same elements that We’ve waited a long time to see each other you’re used to seeing, such as: so have no doubt that the 2022 AIA Annual Conference Educational will be one for sessions to the books! help your business grow Numerous networking opportunities for you and your peers Exhibits featuring the latest industry technologies and services

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AGENT / BROKER DIVISION REPORT

through the fence

DAVID HAMPSON, CPCU, ARM, CAIP PRESIDENT // SCHRAGER HAMPSON AVIATION INSURANCE AGENCY LLC One of the things I love about our industry is that most of my colleagues, competitors and underwriters are aviators who somehow stumbled into insurance rather than insurance geeks who found their way to aviation. Trust me, this makes our gatherings, conferences, and day-today business much more fun and interesting!

I am embarrassed to admit I fall into the latter category, though I was always an aviator at heart.

I finally took the plunge about 10 years ago to get my pilot certificate after my wife surprised me with gift certificates for flights on my birthday. Several ratings, 1,200 hours, and more dollars than I want to count later, I feel like part of the club. My wife still calls me an insurance nerd, but I do not think that will ever change.

July 23, 1976 U.S. President Jimmy Carter shortens the trip at New York’s LaGuardia Airport with a jump.

One of the advantages my prior general insurance background has given me is a broad perspective on various policies available to provide clients with a complete coverage solution.

A trend I have observed in our industry is a tendency to focus so intently on handling aviation exposures that we sometimes overlook addressing what I term the “through the fence” nonaviation risks our clients face. At risk of sharing some of my secret sauce, here are some often overlooked coverages that can differentiate you from competitors who seldom venture outside the airport gates of insurance coverages.

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Employment Practices Liability

Cyber Liability and Data Breach

Clients who have any employees should be offered this coverage. If the client has Directors & Officers liability coverage in place, it can sometimes be bundled together under the same policy. Employment Practices Liability provides coverage for allegations of wrongful acts of an employer such as discrimination, sexual harassment, retaliation, and wrongful termination.

This coverage has gained great significance in recent years as businesses increase the use of technology and online work. The pandemic has accelerated this trend with employees working remotely and accessing company information from home or sometimes through public wireless networks.

This policy has a third-party component that protects liability arising from the breach of personal information of customers and employees such as social security numbers, dates of birth, and credit card numbers.

There is also a first-party component that indemnifies the insured when their systems are hacked. There are usually sublimits available for business interruption, data loss destruction, computer fraud, funds transfer loss, and cyber extortion.

Even if an employer does everything by the book with respect to federal and state labor laws, a baseless allegation can cost many thousands of dollars to defend. Businesses that tend to have higher employee turnover such as FBOs and flight schools are generally more at risk of a claim because there is a greater statistical probability of hiring a bad apple and usually less loyalty and trust between both employer and employee.

We have all seen prominent examples in the media of large companies that have suffered a significant data breach. Cyber extortion is now becoming one of the most common cybercrimes, and the perpetrators are increasingly targeting smaller businesses.

These extortionists are known for providing five-star service to get your systems back online if you pay their ransom demands!

One of the policy benefits most insurers offer is a free employment practices “hotline” for advice on any difficult employee issues that arise. This benefit alone can be worth the premium cost.

Most insurers offer the option to purchase third-party coverage for a modest additional premium, which I usually recommend also. This covers third parties such as guests, vendors, or clients of the insured.

Some real-life examples I’ve encountered include a student pilot who alleged a flight instructor sexually harassed her, and an obese customer of a charter operator who alleged she was discriminated against after being bumped off a flight that would have exceeded weight and balance limitations.

Excess Auto Liability Most business auto insurers will not write higher than a $1 million or $2 million combined single limit for liability coverage.

I often encounter aviation companies that have $100 million or more of aircraft liability but only carry a business auto policy with a $1 million or $2 million limit.

I suspect a plaintiff’s attorney representing

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an auto claimant might not be very interested in agreeing to settle within policy limits in such a scenario.

What I often see these property polices lacking is business income and extra expense coverage.

This provides loss of business income (defined as net profit plus continuing expenses) after a covered property loss, and/or extra expense associated with getting re-established at a temporary new location during the period the property is being repaired or restored.

Unfortunately, in aviation insurance we do not have umbrella policies to provide a single limit of excess coverage over all the insureds’ other liability policies. In the soft market, this coverage gap could often be solved by adding excess auto liability by endorsement to the aviation general liability policy, but that is less commonly available now.

To be clear, this does not provide any coverage for business interruption associated with physical damage loss to an aircraft; extra expense coverage is needed on the aircraft policy to address that exposure. As such, some aviation businesses do not require this coverage (i.e., a flight school with a small airport office). However, businesses where income is primarily derived from their physical location, such as an FBO or aircraft maintenance facility, could potentially incur substantial financial loss from an occurrence rendering their premises unusable for a long duration.

Fortunately, most aviation insurers are still providing liability coverage for autos on airport premises at policy limits, but this coverage falls away as soon as the vehicle drives through the airport fence. There are several markets that can provide standalone excess auto liability policies, and up to $5 million is usually readily available for a reasonable premium.

EVEN IF AN EMPLOYER DOES EVERYTHING BY THE BOOK WITH RESPECT TO FEDERAL AND STATE LABOR LAWS, A BASELESS ALLEGATION CAN COST MANY THOUSANDS OF DOLLARS TO DEFEND.

Business Income and Extra Expense on Commercial Property

The good news is that if your client already has a commercial property policy, business interruption coverage can easily be added by endorsement. Choosing the appropriate limit involves complex accounting calculations that are beyond the scope of this article but is a topic we can address in a future BINDER issue.

Most aviation companies that own property and equipment address this exposure with a commercial property policy, and there are several managing general agents in our industry that offer excellent programs for aviation and airport related property.

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Professional Liability aka “Errors & Omissions”

engineer, aircraft broker, or even an FBO providing travel agenttype arrangements for rental cars and hotels has this exposure.

Most insurance brokers know something about professional liability, as we all carry this coverage to protect us against allegations of errors and omissions in procuring coverage for our clients. Aviation insurance brokers are also usually familiar with the “negligent instruction” coverage available on either an aircraft hull and liability or aviation general liability policy for flight schools to protect them and their employee instructors against errors and omissions claims.

Broadly speaking, professional liability policies provide coverage for failure to maintain an appropriate standard of care in the provision of the insured’s professional services.

The main difference between professional liability and general liability is that the former provides coverage for economic or financial loss suffered by third parties as opposed to bodily injury or property damage. Unlike most policies we are accustomed to, these are usually written on a claims-made basis with defense costs within the limit of liability.

However, the need for professional liability can extend far beyond flight schools. Any sort of aviation consultant, aviation

Aviator at heart, circa 1989.

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reinsurance division

Long-COVID Syndrome for Airlines?

Impact of the Pandemic Walter Voigts-von Forster // Munich Re Historically the passenger airline industry has enjoyed long stable growth patterns.

Year-on-year there was a compound annual growth rate (CAGR) of +2.5% for the number of in-service passenger aircraft. The CAGR of passenger numbers was at +3.9%. This growth pattern was dented in recent history by two events — the attacks on World Trade Center in 2001 and the financial crisis in 2008 — but the aviation industry recovered swiftly from both of these. Then came the COVID-19 pandemic and airlines became a patient with a pretty bad case.

this dropped to 1.8 billion passengers in 20201. The passenger load factor dropped from 82.6% down to 65.1% over the same period 1. Of the 27,500 passenger aircraft that were in service at the end of 2019, only 11,300 were in operation by early April 2020, recovering to around 21,200 by year-end2.

The big question since this collapse has been: how will the airline industry come back?

Economists have suggested V-, U- and L-shaped recovery scenarios. Based on the first assumption that it will take until the end of 2023 to reach 2019 levels of flight activity again, the graph illustrates what such recoveries might look like.

Whilst in 2019 around 4.5 billion passengers were carried on airlines worldwide,

1. I ATA Outlook for the global airline industry, April 2021 update 2. S ource: Cirium Fleet Analyzer

Source: Cirium Fleet Analyzer – projections are assumptions purely for illustration.

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For this purpose a V-shaped recovery is defined as getting back to the same trajectory that the industry has been on prior to the pandemic, i.e., no permanent loss of growth. Looking at the impact of earlier shocks like WTC and the financial crisis makes this seem very unlikely.

well, or if airlines may have to adapt to a slower growth pattern such as an L-shaped scenario.

A Generational Shift in Fleets When the pandemic struck, airlines had to decide which aircraft to keep on the ground and which to keep in service. The two graphs showing the Boeing and Airbus main families of aircraft illustrate what happened in the fleets.

A U-shaped scenario would be returning to the same gradient of growth once things are back to normal, as indicated by the orange dotted line in the graph. This is what happened after earlier events. Time will tell though if that may be too optimistic as

By this sample, the first obvious difference is that whilst in 2015 80% of the aircraft were in service, this reduced to 59% in 2020.

Long-haul aircraft were affected more than short-haul; Boeing 777 were stored to a higher degree than Boeing 737 (even noting the situation with the 737 MAX).

Older aircraft were retired or put into storage more so than current generation aircraft. Compare Boeing 787 to 757 and 767 or Airbus 350 to 330 and 340. A special case is the Airbus 380. During the comparison period Airbus announced the discontinuation of this model and when the pandemic hit the aircraft was hardly utilised at all anymore.

One positive effect from this is that passengers get to enjoy more modern aircraft. More importantly, improvements in technology have been a key driver of improving safety. The return of the Boeing 737 MAX is expected to ultimately show this as well, although its initial track record was poor. Loss statistics will tell over time, but this massive shift in fleet composition

Passenger aircraft by status: retired, in storage, and in service, comparing 2015 to 2020.

Source: Cirium Fleet Analyzera

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Heading Towards a Different Passenger Profile?

towards modern aircraft may have a longterm positive effect on safety. The newer aircraft are also more fuel efficient with the positive effects on both operating cost and CO2 emission.

Business travellers have always been a key contributor towards airlines’ profit margin.

During the pandemic health and safety concerns, restrictions on cross-border travel and possibly tighter travel budgets due to the recession have drastically restricted business travel. At the same time the alternatives of tele-conferencing and remote working have functioned well and are here to stay.

A more short-term impact is the loss of aircraft market values due to the high supply of aircraft to the market and low demand. This loss of asset values is crucial for aircraft owners such as airlines and leasing

Returning to the discussion on the shape of the recovery: do these factors point towards a structural change in how much people fly for business reasons, and will we see an L-shaped scenario?

companies. Insurers may view with more concern that the insured values of aircraft have not dropped to the same extent, hence creating a widening gap between current market values and insured values. When deciding if a damaged hull can be repaired or a total loss should be paid out, the interests of insured and insurer may not be aligned.

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The rise in leisure trips is expected to outpace the recovery of business travel.

Whilst these passengers fill up most of the

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seats, they only help to cover a portion of the costs of airlines. With the demand from business travel potentially reducing, airlines may have to place higher emphasis on leisure travel as a source of profit. Higher base ticket prices, or promotion of premium economy seats may result.

transport sector and the rest of the aviation industry, with many jobs at stake.

While the aviation industry has often been a target of government policies, the COVID-19 crisis has precipitated a new suite of loans, loan guarantees, wage subsidies and equity injections, raising concerns about competition and the efficient use of public resources.

Another factor suggesting an L-shape in the trend line is growing awareness of travellers to consider the impact on the environment that flying has, and consequently to make conscious choices not to fly or to travel by different means.

The Organisation for Economic Co-operation and Development (OECD) has thus suggested policy responses addressing these concerns5.

Regarding market dynamics, the impetus is to find the right balance between the need to support companies who had a healthy business model prior to the pandemic, and the risk of distorting competition. The target should thereby be to preserve business dynamics and also allow exit. Looking ahead, the influence of government should encourage individual firms to invest into green transition, but also to address sustainability along the entire value chain, which requires coordination across the industry and boundaries.

Economical Impact and Government Intervention The airline industry was overall healthy prior to the pandemic, showing $26.4 billion of net post-tax profit in 20193. This figure plummeted to -$126.4 billion in 2020 and is expected to amount to $-47.7 billion for 20213. Consequently, the debt of airlines rose by $120 billion to $550 billion at the end of 2020 compared to the start of the year4.

The cost of this debt in itself will either trigger a long-term rise in ticket prices or a drop of profit margin. To help airlines survive the initial financial shock of the pandemic, governments around the world have offered assistance. Whilst air transport only represents on average 0.3% of GDP, it is a key enabler of many other economic activities. The dramatic drop in demand for passenger air transport due to the containment measures implemented as a response to the pandemic is threatening the viability of many firms in both the air

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As with many COVID patients, airlines will take a while to get fully back on track again, and some things may permanently be a bit different: recover to financial health, come off the support of governments and reduce the debt burden, maintain some operational changes to protect the health and safety of passengers and staff, deal with a more rapid change in fleets than planned, and possibly accept a long term slowing of the growth trajectory for both business and leisure passengers.

3. IATA: Outlook for the global airline industry — April 2021 update 4 IATA: Press Release No. 46 of 2020

5. OECD Policy Responses to Coronavirus (COVID-19)

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CLAIMS division

AVIATION RISK THE RETURN TO NORMAL OPERATIONS POSES SOME NOVEL CHALLENGES

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Everybody is aware that there are an unprecedented number of aircraft currently in storage and we are all hoping that they come out of storage in the very near future.

In normal times, we are used to seeing aircraft out of service for 24 hours or maybe a few days without any issues being raised.

Now we have many months of inactivity for machines that are used to being operated and cycled through the routine of flying with systems operating, components warming up, keeping dry and almost naturally keeping themselves functional.

Looking back to this time last year, when operators took on the task of transferring fleets of aircraft from the runways to storage facilities, there were a number of collision incidents. We have now begun to see a small increase in ground collision incidents as aircraft are moved in preparation for reuse.

Thankfully, the supply of used serviceable flight controls is now more plentiful due to the number of aircraft retired, so insurers should benefit from that. However, ultimately this could result in delays and the requirement for other replacement aircraft to be moved, now in less relaxed circumstances and thereby creating additional risk.

As such, airports and airlines will face some novel challenges as they turn their attentions towards restoring normal This feeds into the wider issue of operations. From staffing and “skills fade.” Manoeuvring aircraft training, to transitioning an requires knowledge, understanding unprecedented number of and, crucially, practice. Many aircraft from storage facilities have wing geometry that is not to the runway, there are clear to everyone involved John Bayley — Regional Director, new risks that will need in moving and turning an mclarens general aviation to be managed. aircraft. For example, the wingtip does not always When it comes to aircraft preservation and reach its maximum distance from a turning storage there are very clear instructions point when expected. in the aircraft manuals about how these assets are put into storage to protect them.

Activities such as towing require specialist However, ground handling of aircraft, in knowledge, especially if reversing an aircraft any shape or form, comes with an element using a towbar that has a pivot on both of risk. Aircraft are large and tricky to ends and steering wheels at the other end of manoeuvre on the ground. Over the course the tow truck. Anyone who has never tried of any regular year, we would expect to see manoeuvring an aircraft with effectively almost every single part of aircraft perimeter four pivot points has probably never suffered components being impacted at some stage, this level of visual confusion. It is a skill and it goes to reason that we’ll see an that requires practice along with a focus of increase in these kinds of losses. concentration and anticipation.

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It has yet to be seen what the long-term effects are of engineers and flight crew being placed on furlough, but it’s clear why practice is a requirement for engineering and flight crew to maintain qualifications.

The scale of aircraft returns to service has never been undertaken on this level and a number of new staff and limited hands-on practice opportunities in many areas could spring a few surprises.

to some type of operational normality. That said, all indications are that the aviation community is rising to this challenge. The strict regulations that govern aviation will no doubt ensure that this industry is better placed than others. There are numerous documents published on this subject, so it is clearly under review and once again the history of strict regulation and law in aviation will ensure the industry is doing all that it can.

The limited availability of simulators and training opportunities also poses a significant challenge, and it will be

From a maintenance and a safety perspective, returning a complex machine

interesting to see what the authorities consider to be acceptable levels of task frequency — levels that may have been dismissed as being completely unacceptable 18 months ago now may form part of an essential reasoning to return our industry

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back into a serviceable condition is a meticulous process. Aircraft must be carefully restarted and tested before they can be returned to service. Yet whilst there has been much attention paid to potential issues relating to the impact of storage and

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disuse on equipment, some of the anomalies we will see going forward will not have been fully predictable.

Thorough testing of the aircraft systems prior to use is the norm and should alleviate these issues, but it’s another example of the potential challenges, and costs, that the industry may face in coming months. As for some of the aforementioned logistical issues, we’re seeing more and more operators undertaking independent risk surveys, which can provide good operational pointers and airport activity suggestions to mitigate risk.

And, of course, quality insurance and claims management will have a key role to play in helping the industry manage the consequences of these. ___________________________________

We only need to consider the recent B737 bleed valve scenario whereby unexpectedly a valve decides to stick in place causing an issue. Thankfully, this only affected one of two engines on any given aircraft, and the FAA issued an emergency airworthiness directive in July 2020 requiring inspections of the valves. While it’s something that will have subsequently been looked at in detail by manufacturers and operators, perhaps the key lesson here is that we cannot predict all events.

We only need to consider the recent B737 bleed valve scenario whereby unexpectedly a valve decides to stick in place causing an issue.

One interesting consequence that we have seen in several recent claims relates to having the animal world resident in an aircraft. This has been identified without serious safety consequences, aside from some eye-wateringly high cost. It’s an area that both maintenance organisations and industry bodies are paying close attention to.

One recent IATA document, for example, identified the most common cause of erroneous air data for instrumentation being contamination of the sensor in the form of dirt or debris from insects often attributable to contamination when the probes were not correctly protected.

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John Bayley is Regional Director, McLarens Aviation McLarens Aviation is a leading provider of loss adjusting, survey and risk services to the global aviation and insurance industries. It has a team of over 100 in-house aviation specialists, operating in 21 countries across the globe. In the USA, in addition to McLarens Aviation, McLarens General Aviation maintains a network of specialists with a focus on the GA sector.

Contact

Bill Garcia Regional Director, McLarens Aviation

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attorney division report

is it ok to come out now?

Michael McGrory // SmithAmundsen, LLC

Restaurants, museums, and movie theaters are reopening at full capacity. Flights are full of masked (and unusually unruly) passengers. Bands are touring again. It’s getting a bit more difficult to get a seat on a commuter train. And traffic seems to be getting back to normal — that is, terrible all the time.

depositions, and mediations. Nobody loves remote appearances, but they are convenient and cut down on the time and expense associated with travel. Of course, there’s a trade-off. For example, it is helpful to experience an important witness’s demeanor in person to accurately gauge credibility and jury appeal.

And remote hearings make it difficult to read a judge’s reactions to arguments. So, if we assume remote appearances will remain a practical alternative to travel for the future, attorneys and clients will have to determine themselves where the pros and cons lay and how to approach each event.

The world is reopening after the unprecedented COVID shutdown and the courts are not far behind.

It is probably premature to reflect on the legal system during the shutdown, especially since COVID variants appear to be on the rise as of this writing. But one aspect of the legal system’s adaptations to deal with the shutdown — remote appearances — merits some thought since many commentators believe it could be a permanent change.

The world is reopening after the unprecedented COVID shutdown and the courts are not far behind.

However, there is a more intangible effect of remote lawyering that has been on my mind for months. I have several cases where I have never laid eyes on opposing counsel in real life. There is no chitchat before hearings or depositions, little discussion about families or the Bears or Cubs, no talk about people we might know

Setting aside the viral “I’m not a cat” attorney, lawyers have by and large become adept at conducting Zoom hearings,

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in common. This may seem trivial, but the lack of personal engagement really does impact both the daily pleasure of practicing law and the ability to lawyer effectively.

For one, I’ve noticed an uptick in motion practice to resolve low-stakes disputes that, pre-COVID, would likely have been resolved with a friendly conversation. Life is so much better, and the practice of law more efficient and effective, when one can develop amicable relationships with opponents. My hope is that this state of affairs is temporary and short-lived.

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There is reason to be optimistic. The 2021 AIA Open in Atlanta will be great fun, and it looks like AIA is full-speed ahead for an in-person annual conference in 2022. I hope you all are as excited as I am to get together again.

I cannot close without offering a huge “Thank you!” to outgoing Attorney Division Director Bob Williams. Bob showed tremendous leadership during very challenging times, and we are grateful for his efforts and for the outstanding CLE he organized. Thanks, Bob!

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BRUCE LANDSBERG

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MARK SEARLE

International Air Transport Association, Global Director, Safety

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PAT GALLAGHER

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ANTHONY LAWRENSON

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ALBERT J. BOQUET, PH.D.

Embry-Riddle Aeronautical University, Professor of Human Factors and Behavioral Neurobiology

KEVIN NOERTKER

Ampaire, Co-Founder & CEO

MICHAEL STASZEL

McLarens Aviation, Senior Aviation Surveyor

The agenda will also include the presentation Insuring the NASA Space Program: “The Write Stuff” with speakers Michael Harrington of Lockheed Martin and Patton Kline of Marsh. In addition, Fitzpatrick & Hunt, Pagano, Aubert, LLP will host a panel to discuss legal updates.

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young professionals spotlight

game on!

olivia hobson // MPhys (Hons) ACII Vice President // Aviation Reinsurance // Guy Carpenter Having started in the aviation reinsurance market in 2016, my first experiences were largely focused around rate reductions. Rate increases were very much considered magical unicorns that were rarely seen in the wild. Years later we found the unicorns (or at least a small herd)!

It has felt such a privilege to experience a hardening market at this stage in my career; however, it has given me room to consider on the careful state of balance in the market.

concept that you can either know the position or the momentum of a particle with exact certainty, but you can never know both. This can be conceptually applied to a number of situations in life in that generally you can either know where something is or where it is going, but you can never be certain of both. Parallels can be drawn between this principle and the insurance market in two categories: the extremes of the market cycle and the movement between the extremes.

Is it okay to come out now?

Reflecting on the current state of the aviation insurance and reinsurance market, it struck me that comparatives could be drawn between the insurance market cycle and Heisenberg’s principle of uncertainty: the

Considering the extremes of the market cycle, either a significant loss has happened creating the turning point from the softest point, or it is the hardest point of the market.

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In the instance where a significant loss has happened, you know the current rating environment, but the impact of the loss is yet to be known. As recent years have demonstrated, the significance of a loss is not always apparent. There are any number of possible outcomes to a loss; passenger liability awards can escalate, and partial losses can become totals, resulting in losses that are much more impactful than initially considered. At the hardest point of the market, it is apparent that the market is profitable, but it is not yet apparent how, if, or when the market will change.

Will capacity increase, or will external factors create greater uncertainty?

Now if you consider business that is written 100%, there is potential for this to add further uncertainty for that particular insurer. If an insurer writes business 100%, they absorb the impact of the losses and therefore remove the associated uncertainty and volatility of that business from the market. If there is a loss that would be deemed significant to the market, but it is written 100%, it is very easy for the market as a whole to take on the principles learnt by the loss. However, it is much more challenging for the market to respond with rate change to a loss that was not written on a coinsurance basis. The insurer is then left with the choice of increasing pricing or changing strategy.

The reality is that the market spends a much larger proportion of time moving between the extremes of the market.

When the market is moving between the extremes there has either been a softening, or the market is reacting to a loss. In these scenarios it is apparent there is either an upward or downward trend but the quantum of this cannot be exactly known at that point in time. Given the unique nature of aviation and the individuality of each risk, the reality at these points in the market is often that until placement is in front of the underwriters, the expectations from each party are not truly known. There is often a lot of excitement about the extremes of the market. However, the reality is that the market spends a much larger proportion of time moving between the extremes of the market, just like a pendulum pauses before moving on.

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In the instance where there is significant uncertainty for the direct market, this is only exacerbated for the reinsurance market since a reinsurer takes on an aggregation of the uncertainty from all of its clients. Whilst this is the purpose of the reinsurance market, it does add an additional level of complexity when establishing pricing, commission levels and strategy. At the extremes of the market these complexities become more obvious, but in a moving market the reinsurance market does not simply have the uncertainties of the direct market, but also those of the reinsurance market and clients changing their buying strategies.

As the market hardens, direct clients sometimes choose to reduce their quota

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share buying just as the prospects for profit improve. The reinsurance market then faces the choice between increasing its capacity as the prospects for profit increase, or to maintain its current strategy. In aviation, the reinsurance market exerts significant influence on the direct market in providing capacity and/or influencing the costs of

Drawing parallels to Heisenberg’s principle is an interesting idea; however, is there a way we can acquire more certainty? Insight and knowledge have always been key to reducing uncertainty, but as we all know it isn’t possible to eliminate uncertainty entirely — an insurable risk is a risk after all — a certainty would be uninsurable.

risk transfer for potential hardening covers, thereby dampening or exacerbating any hardening of direct market pricing.

Applying game theory does bring some interesting concepts to the table. John Nash (whose journey towards the conceiving of the Nash equilibrium was brought to life in the book and film “A Beautiful Mind”) sets out that in competitive scenarios the best outcome is achieved when every party does what is best for themselves and for everyone else. It was the last part ‘and for everyone else’ that was revolutionary and gives us an instrument to view collective negotiations within industries.

The approach taken seems to vary depending on whether the portfolio is largely proportional or non-proportional.

The aviation reinsurance market is very conscious of its impact on the direct market.

While this has the potential to create more uncertainty for the reinsurers, it has a stabilising impact on the direct market. As a line of business, it is admirable the level of consciousness the direct and reinsurance market has for the other party, a seemingly symbiotic relationship.

When individual competitors view the position of the market, it promotes capitalist principles whilst protecting the profitability

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of the whole. By considering this potential to reduce market underselling, premium pools will increase and capacity stabilised.

In recent years there has been increased dialogue about the stability of market premium, and with the reversion to coinsurance in the general aviation market, there is real promise that this could continue to be sustained throughout the market cycle.

Theoretically, by considering the proposition as a market, it should ease the temptation for a race to the bottom.

be disappointed by that result; however, surely it is the true reason why the insurance industry is unique and why there are exciting careers to be had?

This raises the question whether an ideal market such as this is actually possible?

Strictly speaking, the market premium should not fall below the technical premium, yet this is not always the case. Individual portfolio adequacy does not always result opportunities for mentoring and networking with estabin adequate pricing of every risk. Whilst lished industry leaders, a forum for information sharing this can make particular risk,theif vision and amongsense peers, on and a inspiring and sharing energy of the group. The AIA Women’s Initiative provides a line is notthedrawn it is easy for the whole opportunity for women to share experience and knowledge in a forum to support and promote their engagement market to become delinquent.

Intriguingly and development in the industry. it seems that as a line of business, the direct With a membership overseem 500 members, the AIA and reinsurance aviationtotaling market to is the recognized voice of our industry. But we need your be empathic the other market helpof and support in growing that when figure to it more than 1,000 members in the next few years. comes to pricing. In my experience, it seems that the principles by the your Nash You can helpset first out by maintaining current membership.

You can also help by encouraging your co-workers and equilibrium are embraced when market colleagues to join AIA. Finally, those of you in leadership is hardening, butcan less apparent wheninthe positions make a solid investment your organizations by encouraging and supporting your respective staffs’ AIA market is softening. membership. And by telling your company’s story via advertising in the only specialized quarterly aviation-insurance

magazine:of The BINDER. The application such core principles to the insurance market is intriguing, but the Ultimately the work of the AIA on many fronts will continue to provide of ourthese members with constant value, not just at unfortunate aspect theories is that conference time but throughout the year. In this endeavor they do notweshed light on soft factors: deeplyany appreciate yourthe consistent support through your ongoing and sustaining membership.

Please join or when is the right time to push harder, when renew today! to walk away, or when to change approach.

There are probably many people who would

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ONLINE MEMBERSHIP DIRECTORY

Add your Photo

Help put a face to a name by adding your photo to the AIA membership directory located in the members’ only section of the AIA web site.

Uploading is easy through your profile page – however, if you need assistance or would prefer that AIA Headquarters upload your photo for you, we are happy to do so! If you would like AIA to assist you, please e-mail your picture directly to AIA at info@aiaweb.org.

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education committee update

AN UPDATE FROM THE AIA EDUCATION COMMITTEE CHAIR Tim Bonnell, Jr., CAIP, CIC // Aeris Insurance Solutions

I’m honored to be serving as the new AIA Education Committee Chair. We have a fantastic team of committee members committed to bringing quality educational offerings to the AIA membership. This industry is constantly changing and evolving as aircraft, technologies, judicial decisions, the economy, and life changes.

Having a well-educated industry is a foundation for the industry’s growth and success.

The Education Committee worked hard to bring a virtual CIE offering again this year despite all the challenges this COVID-19 era has caused. We just concluded two separate opportunities for a total of 8 CIE and CLE hours, and wish to thank the many speakers who volunteered their time and expertise to make this happen.

July 15 Sessions

Aircraft Accident Investigation Techniques for Insurance Claims: Past, Present and Future Matt Kenner — ESi

Risk Management & Insurance for COVID Remediation in Aviation Ryan Waguespack — National Air Transportation Association David Allen — David Allen Certified Scott Ross — Global Aerospace Inc.

August 5 Sessions

Knowing and Mitigating the Risks of Entrusting Aircraft Mike McGrory — SmithAmundsen, LLC Bob Werderich — Illinois Aviation Academy, Inc.

3D Printing in Aviation: Perspectives on Insurance, Manufacturing and Product Liability Lisa Savitt — The Axelrod Firm Lauren Haertlein — GAMA Lili Beneda-Rubenstein — AIG Aerospace Mike Gordon — Piper Aircraft

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“If the minimum wasn’t good enough, it wouldn’t be called the minimum” How Flight Training Beyond the FAA Minimum Can Impact Underwriting & Claims Stuart Hope — AssuredPartners Aerospace Jim Klepper — FlyRight Doug Carmody — Executive Flight Training Dave Garvey — Aviation Training Management

Social Media: How It May Impact Claims/Litigation Glenn Vallach — USAIG Ken Laborde — Gieger, Laborde & Laperouse Albert “Al” Grandoit — Brics & Wes L3C

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The Appraisal Process, Diminution in Value & The Appraisal Clause Eric Weidner — McLarens General Aviation Keith Bransky — Jet Appraisal Corporation Stephen Wood — The Dyer Group, Inc. April Robbins — Brackett & Ellis, P.C

Factors Associated with Accidents in the Helicopter Emergency Medical Services: Challenges for the Insurance Industry Albert J. Boquet, Ph.D. — Embry-Riddle Aeronautical University

AIA is also offering another Aviation Insurance Core Principles Course, August 27–28 in Atlanta, GA. We’ll be offering this course in-person and online. To ensure the highest possible quality, both in-person and online registrations will be limited. The Core Principles Course is key to becoming a Certified Aviation Insurance Professional (CAIP) and is only offered a few times a year. Don’t miss this opportunity!

The Education Committee is working to provide additional educational opportunities to AIA members. Please check your AIA emails for upcoming events throughout the year.

If you have suggestions for topics or speakers, please consider joining the committee or sharing your thoughts with the AIA team.

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where are they now?

john howard

Paul V. Herbers // Cooling & Herbers, P.C., AIA Past President, 2017–2019

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John Howard’s career in aviation insurance began as a bit of a fluke. His parents pointed him toward securing a dependable job in banking or general insurance. Interviewing with London broker J. H. Minet, his interviewer asked John what he enjoyed doing on weekends, and John answered that he loved to watch aircraft at the airport. He was offered a job in aviation insurance and his future course was set. That was 1971.

Chicago became his new home. By 1978, as a 25-year-old vice president, he was running the aviation department. He soon decided that the company should join the AIAI, which had only been formed in 1977 and would become our current association, the AIA. John attended his first conference in South Padre Island, TX, in 1980 and joined the Underwriters Division. He has been a proud member of the Association from that point on.

A few years later, after moving to Stewart Wrightson, John started to handle accounts based in the USA. Soon he was sent to the States on a special program for two years.

John arrived in Chicago in 1976 to join subsidiary Stewart Smith.

It was not long before John moved to Johnson and Higgins to become the Midwest manager and vice president, and he also brought them to the AIAI as the first major broker to join. In short order, John joined the board of directors.

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By 1985, John was appointed vice president of what by then had become the AIA. He was responsible for bringing famed aviator Bob Hoover to the 1986 San Francisco conference as keynote speaker, and Paul Garber to the 1987 Wichita conference as keynote speaker.

The following year John served as AIA President for the 1988 Charleston conference, opening with a rousing “Good Morning, AIA!” à la Robin Williams. That conference was particularly notable for the number of major brokers and larger insurers attending for the first time.

Since the day John stepped down from his eight years of service on the board, he attended every conference to follow, and has maintained a high level of support for the Association.

In 1996 John founded The Silver Eagle Agency, later named Sterling Risk Management, and today operating as Sterling Aviation Markets, now run by his son Chris Howard.

Silver Eagle created the AIA’s E&O program for member brokers, which it still provides.

J. H. Minet, his interviewer, asked John what he enjoyed doing on weekends, and John answered that he loved to watch aircraft at the airport.

In 2000 John earned his private pilot certificate and soon became a proud aircraft owner. He retired on January 1, 2020, after 49 years in the business.

John’s tenure as president saw much growth in the AIA. Membership expanded to include an International Division. The role of past president was created to help each new president transition into the office, which was a one-year term then.

The AIA started a scholarship for students taking the ACII (Associate of the Chartered Insurance Institute) in aviation insurance. Further, John organized the first London Conference in 1988 at the Marine Club.

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John is pleased to say he has enjoyed every minute of his career, and all the people he met and befriended in the AIA and in the industry. He is eternally grateful to the AIA for so many things, and equally grateful to that job interviewer in 1971 who recognized his love of aviation and hired him for J.H. Minet.

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aia open at bear’s best Monday, September 20 Make plans to join us Monday, September 20, for the AIA Open at Bear’s Best!

Spaces still available for foursomes or individual golfers.

Individual Golfer: $250 // Foursome: $1,000 Registration covers greens fee, cart fee, four drink tickets, driving range balls, breakfast, snack and lunch. Clubs are available for rent, upon request, at an additional fee.

Tournament extras include a Hole-in-One Contest, Putting Contest, Longest Drive, and Closest to the Pin.

DETAILS Bear’s Best (Atlanta), 5342 Aldeburgh Drive, Suwanee, GA 30024 Registration begins at 8:00 a.m. at Bear’s Best Course // Shotgun start at 10:00 a.m.

Lunch and Awards immediately following the outing.

ABOUT THE COURSE Bear’s Best Atlanta is one of the best daily fee courses in Georgia and providing the experience of a luxurious private club at a public facility for all golfers. Jack Nicklaus chose 18 of his best and most memorable designs for this course!

Contact info@aiaweb.org for registration information or to learn how to become a sponsor.

THANK YOU, SPONSORS! TOURNAMENT SPONSOR

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BEVERAGE CART SPONSOR

Hole Sponsorships still available for $250 each! Contact mary.gratzer@aiaweb.org for information.

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Board of Directors President Greg Sterling

Director, Underwriter Division Wes Collier

AIG Aerospace Atlanta, GA greg.sterling@aig.com

Old Republic Aerospace Kennesaw, GA wcollier@ORaero.com

Vice President Chris Morin

International Director Andy Trundle

Murray, Morin & Herman, P.A. Tampa, FL cmorin@mmhlaw.com

Starr Aviation London, United Kingdom Andy.Trundle@starrcompanies.com

Treasurer Luke Uithoven

Director-At-Large Nicole Wolfe Stout

Kimmel Aviation Insurance Agency, Inc. Greenwood, MS luke@kimmelinsurance.com

Strawinski & Stout, P.C. Atlanta, GA nws@strawlaw.com

Secretary Ian Wrigglesworth

Director-At-Large Chris Arnold

Guy Carpenter London, United Kingdom ian.wrigglesworth@guycarp.com

Sutton James an Optisure Risk Partner Hartford, CT carnold@suttonjames.com

Director, Agent/Broker Division David Hampson

International Director-At-Large David Watts

Schrager Hampson Aviation Insurance Agency LLC Bedford, MA david@planeinsurance.com

Old Republic Canada Ontario, Canada dwatts@orican.com

Director, Attorney Division Mike McGrory

Immediate Past President Jim Gardner

SmithAmundsen, LLC Chicago, IL mmcgrory@salawus.com

The James A. Gardner Company Inc. Marietta, GA jim.gardner@jagardner.com

Director, Claims Division Eric Weidner

Executive Director Mary Gratzer

McLarens General Aviation Marietta, GA eric.weidner@mclarens.com

AIA — Aviation Insurance Association Lexington, KY mary.gratzer@aiaweb.org

Director-Elect, Claims Division David Gourgues

AIA Board General Counsel Ray Mariani

McLarens General Aviation Celebration, FL david.gourgues@mclarens.com

Leader, Berkon, Colao and Silverstein LLP New York, NY rmariani@leaderberkon.com

Director, Reinsurance Division Walter Voigts-von Forster Munich Reinsurance Company Munich, Germany WVoigts-vonForster@munichre.com

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