Binder Vol. 42 No.2 Summer 2017

VOL. 42 NO. 2 - SUMMER 2017

THE BINDER THE FUTURE OF AVIATION INSURANCE SAVE THE DATE: REGIONAL RECEPTIONS

AIAWEB.ORG

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IN THIS ISSUE Editor Nigel Wright

XL Catlin nigel.wright@xlcatlin.com

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AIA PAST, PRESENT, FUTURE

TALENT DEVELOPMENT

President’s message

EDUCATION UPDATE

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THE NEXT WAVE

INSUFFICIENT COVERAGE AMONG KEY CONCERNS

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AGENT/BROKER DIVISION REPORT

MEMBERSHIP REPORT

AIRCRAFT INSURANCE 2017

ATTORNEY DIRECTOR’S REPORT

FOCUSING ON MEMBERSHIP

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FIRST REGIONAL RECEPTION A SUCCESS

NOW & THEN

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SAME SIDE OF THE NET

GA ACCIDENT HISTORY & PREMIUM VOLUME

DALLAS REGIONAL REPORT

CLAIMS DIRECTOR’S REPORT

UNDERWRITER DIRECTOR’S REPORT

AVIATION HISTORY

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

Published by the Aviation Insurance Association 7200 W. 75th St. Overland Park, KS 66204

PRESIDENT’S MESSAGE

AIA PAST, PRESENT,

FUTURE Paul Herbers - AIA PRESIDENT, Cooling and Herbers

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ollowing our conference in San Diego, which may have been the most successful ever with 530 attendees at the spectacular Del Coronado, I am honored to assume the role of the President of the AIA. Your AIA is thriving due to the tremendous wealth of talent and experience in AIA’s Board of Directors.

We are also most grateful to the splendid Onyx team of Mandie Loroff, Elton Ching, Chris Morrill and Scott LaPrath, who provided polished and seamless support for our conference. Finally, of course, we thank our members, our program contributors, our highly valued sponsors, and our exhibitors who made the event so memorable.

We all owe a debt of gratitude to our retiring directors: Chris Zanette, Treasurer and Deborah Elsasser, Director of Attorneys, both of whom have served the AIA long and faithfully, and have pledged their continued support. We welcome back as Directors-at-Large, Matt Rowley and Chris Morin, and returning Director of Claims, Steve Teller.

We are also delighted to have joining us as Director-Elect for Brokers and Agents, Chris Arnold of Sutton James, Inc.

Now as I begin the two-year term, it is fitting to acknowledge those who have gone before me. Since my first conference in Nashville in 1984 I have witnessed a most impressive line of presidents over the years, many of whom are now Pinnacle Award winners, and who have brought the AIA to its position of prominence today. I have personally served on the Board under Presidents Paul Leonard, Todd McCredie, Frank Kimmel, Franklin Bass, and David Sales, each displaying his individual style and energy and consistently raising the Association higher and higher. The AIA’s visible progress over these years is stunning.

We will benefit significantly from the Board’s selection of a new Executive Committee: Jim Gardner as Vice-President, Ernest DeSpain as Secretary, and Jonathan Doolittle as Treasurer.

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Our Immediate Past President deserves special mention, however. David Sales has served 12 years on the board with

gusto, but he also brought the London Reception to a new level of growth, esteem and visibility in the London market.

Prior to his assumption of the presidency, David focused a special energy on AIA’s educational programs. He brought this effort to a significant milestone as President, when his AIA Education Committee completely redeveloped and republished the Aviation Insurance 101 program with new lecturers and text, and brought additional improvements to the CAIP program. The text, named Aviation Insurance Core Principles and Concepts, contains carefully developed contributions from 38 of our members, led by Pinnacle Awardee, Doug Johnson. We all owe a great debt of gratitude to the committee and our Education President, David Sales.

Ahead is the challenge of bringing the special gifts of the AIA to our industry’s next generation. The AIA offers a wealth of opportunities to its members, through social interaction and educational programs, among many other things. We will strive in the coming year to expand the AIA’s reach to the younger and newer members of your

companies and to broaden AIA’s sphere to those who cannot attend our annual conference. The developing plan for regional conferences is intended to allow many more of your employees and friends to experience the AIA personally. We intend to present programs during this next year in Dallas, Atlanta, and southern California, along with our regular biennial London Reception at Lloyd’s in November 2017. We hope to expand to other cities in the future, such as New York, Chicago and other centers of aviation insurance throughout the U.S. The board has other initiatives under consideration for the AIA. Stay tuned for exciting information about the AIA Educational Foundation as well. Opportunities and talented people abound. The future of our industry is bright, and your Board will ensure that the AIA remains an important part of it for many years to come.

With thanks to you all, Paul

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AGENT/BROKER DIVISION REPORT

LUKE UITHOVEN - Director of Agent & Brokers Division

The NEXT

WAVE 4

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reviously, I wrote an article for The Binder addressing how a seemingly unchanging and outdated world of insurance was feeling pressure to evolve and adapt. The premise of this article was to discuss how even though the concept of insurance was created in the 14th century; it is still practical in all aspects of our current world, despite how quickly our world is changing. As the insurance industry is dealing with changing cultures, technology, and threats worldwide, the Aviation Insurance Association is gearing up to take on the changing times in the aviation insurance industry by making strides to appeal to the younger generation of aviation insurance professionals.

Without having the actual data, I would feel comfortable assuming that the majority of membership in the AIA has 20+ years of experience in insurance and in some cases many more years specializing in the aviation insurance industry.

The current members and conference attendees are agency owners, VP’s and Presidents of their respective Insurance Companies, and Partners in their law firms. This brings me to the questions of: • Where are the 3-5 year aviation insurance professionals?

• How do you reach the person that has been diligently building a small book of business into a respectable size for 3-5 years?

• How do you engage this demographic and demonstrate the importance of our association when all they look at is the bottom line costs?

Moving forward, the association has planned regional AIA events to target this ever-increasing group of less tenured professionals to ideally make our current events more inciting to the future of our industry.

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n order to breed more interest with the new generation of aviation insurance professionals, we must first analyze why this group is not currently participating in AIA events. I would suspect a main reason is the soft market that encompasses the industry currently. Due to this, it would seem logical that most people do not attend AIA events due to the expense. Having once been a novice in the industry myself, I understand the uphill battle you face as a young agent in trying to build relationships with clients and sometimes it seems almost unthinkable to leave the office for five days to travel potentially across the country to attend a conference. While I am trying to make the argument that these 5 days are invaluable to your business and relationships, it is not lost on me that there is a dollar sign attached - both in the cost of attendance as well as potential lost revenue associated with being out of the office. It is because I have been on both sides of this argument that I feel I am able to say with confidence that if we could entice these “young guns” to take the plunge, they too would see the value of the AIA, both in their relationships as well as in their bottom line.

Because of the obstacles that the yearly week-long AIA conference does pose to this group, we as an association need to be extra diligent is promoting the AIA regional events. These regional events allow us to bring the AIA to this less tenured demographic and provide them with a way to see what our association is all about, right in their back yard. This year, the AIA will be hosting regional events in Dallas and Atlanta, two of the largest hotbeds of the industry. These regional, AIA sponsored events are free to all aviation insurance professionals and include a cocktail reception with a short speaker. They will mimic the London reception, which provides great insight to how the association functions as

“These regional events allow us to bring the AIA to this less tenured demographic and provide them with a way to see what our association is all about, right in their back yard.” well as membership benefits. Most importantly, these events are free to both members and non-members, and give our non-members the opportunity to see what the AIA is about.

Not only will these Regional AIA events benefit the aviation insurance professionals out there who are not current members by showcasing the superior networking and education that the AIA is providing, but it will also help the AIA set up for its own future. In 10 or 15 years when a large majority of the aviation insurance industry as we know it will hit retirement age, this industry will look completely different with a whole new crop of faces, mindsets, business practices and experiences. Our goal in the AIA is to be ready for this turnover. We can prepare ourselves by involving these “up and comers” now- before that generation passes us by. This group can be investing in our association, and hopefully take advantage of the networking, education, and unparalleled business relationships created by the Association.

The AIA’s impact on the aviation insurance industry is immense. We just need the next wave to see it.

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By Alex Wells April, 2017

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MEMBERSHIP REPORT

FOCUSING ON

MEMBERSHIP Jim Gardner - AIA VICE PRESIDENT

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he AIA Board of Directors has been looking into ways to reach more of the aviation insurance professionals in our industry. I believe that in order for the Association to remain a strong influence to the Aviation Insurance industry we need to grow and become more relevant to the careers of a larger segment of aviation insurance professionals who work in our industry worldwide. We are especially interested in reaching those professionals who do not attend our annual conference who work every day in the trenches, producing, selling, and delivering our products and services – Aviation Insurance. We are especially interested in the “Next Generation”, the young professionals entering our industry who one day will be among our leaders. As the original founders and supporters of the Aviation Insurance Association are aging and retiring, we realize it is this “Next Generation” that will determine the long term future of the Association.

It starts with communication. Many of our younger rank and file may not be aware of the AIA, who we are, and what we provide our membership. While our flagship quarterly publication, The Binder, is distributed to members, both in hard copy and now electronically, we really don’t know how far it reaches beyond the members. Our annual conference usually has about 500 attendees or more from all over the world. It is

a wonderful place to network, get valuable education and continuing educations credits (both insurance and legal) and hear from insurance and aviation leaders on the impact of change in our industry. But, how do we reach a larger audience that might benefit from the Association.

Membership Initiative—Regional Receptions.

During a membership committee brainstorming session this past year Paul Herbers, our incoming President, crystallized an idea of holding regional meetings. The Association holds a London Reception every other year. It is a late afternoon/early evening event lasting about four hours which has been very successful in reaching our counterparts in the London Markets with a couple hundred attendees. This reception is held in conjunction with our Semi-Annual Board of Directors meeting. The more we thought about it, the more we realized that we could do the same thing regionally in the US. Therefore, Paul has made it an initiative to hold three regional meetings, one in the summer, fall and late winter/early spring in addition to our annual conference in late April/early May. The first will be held in late June in conjunction with the AIA quarterly Executive Committee meeting in Dallas. The second is being planned in Atlanta in late September and the third in the Los

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Angeles area at a date be determined, probably late February/ early March time frame.

kind of response we are going to get. So, to help us plan, we will need to track positive and negative RSVP’s.

The agenda and format of the receptions are likely to be much the same as the London Reception. After all, if it ain’t broke, why fix it? We want these receptions to be part Industry update and/or education, part about what is going on in the AIA, but mostly about getting together as an industry with a beverage (adult or otherwise) and hors d’ourves and networking; meeting old friends and making new ones. While everyone in all of our divisions within the AIA will be welcome, we especially want to invite the rank and file who would never have the opportunity to attend an annual conference; those who make up the heart and soul of the everyday job of creating, selling and delivering our product to our clients. We want it to be a “thank you” to them for the vital role they play in our industry.

The state of our Association has never been stronger. Our annual conference remains, and will always remain, the pinnacle of our Association. It has become an important part of our international community to meet with their US counterparts for networking and establishing business relationships. It is virtually the only place that a broker or underwriter can meet so many of their business partners in one place in so short a time span. The aviation insurance specific continuing education brokers, underwriters, and attorneys receive at the conference is invaluable. Our Education Committee has made great strides in improving our education programs and is looking for better ways to provide more opportunities to more aviation insurance professionals. We, as an Association, have made it a priority to look for ways to better serve our current membership and attract new members.

We will be sending an email RSVP invitation to all individual and corporate members of the Association. But we want to reach members and nonmembers alike. How do we get the word out? We may reach out to a couple of insurance companies for each reception and ask them to distribute RSVP invitations on behalf of the AIA to their broker, attorney and claims networks as well. Since this is new, we really don’t know what

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We hope that these Regional Receptions will become a great place to advance out industry and provide a valuable education and networking experience for aviation insurance professionals.

2017 ATLANTA REGIONAL RECEPTION 3:30 pm – 6:30 pm Le Meridien Atlanta Perimeter 111 Perimeter Center West Atlanta, GA 30346

If you are a member of the Aviation Insurance Association or if you are working in the aviation insurance business, join us for the 2017 AIA Atlanta Reception. This is an incredible education and networking opportunity, and the best part is, REGISTRATION IS FREE for members AND non-members!

This event is at NO COST to attendees and is open to both members and non-members of the Aviation Insurance Association. The only requirement is you must register for the event.

SCHEDULE 3:00 – 3:30 p.m.

Arrivals and Registration 3:30 – 3:45 Welcome and Opening Remarks

4:00 – 5:00 p.m.

Guest Speaker, Mitchell A. Garber, MD, MPH, MSME Senior Managing Consultant Engineering Systems, Inc.

3:45 – 4:00 Education Update, Education Chairman Eric Barfield

5:00 – 6:30 p.m.

Networking Cocktail Reception

SAVE THE DATE

SEPT. 28, 2017

SPEAKER Mitchell A. Garber, MD, MPH, MSME Engineering Systems, Inc. “Any Doctor’s Appointment You Walk Away From…”

Coverage Consideration of Aeromedical Issues Dr. Garber is a Senior Managing Consultant at Engineering Systems Inc. (ESI). He holds a B.A Degree in Psychology and Sociology from Duke University, a Medical Degree from Emory University, a Master’s Degree in Public Health from Harvard University, and a Master’s Degree in Mechanical Engineering from the Georgia Institute of Technology (Georgia Tech).

A former U.S. Air Force flight surgeon, Dr. Garber is board certified in Aerospace Medicine and has over 20 years of military and civilian experience in transportation accident investigation. He was the first and only full-time Medical Officer for the U.S. National Transportation Safety Board, where he participated in more than 1000 investigations spanning all transportation modes. Dr. Garber has also testified before Congress regarding medical issues in transportation accidents.

Dr. Garber has investigated a wide range of medical and human factors issues in transportation and non-transportation arenas, including physical standards, fatigue, perception, medication use, visual impairment, obstructive sleep apnea, substance dependence, injury analysis, egress and evacuation concerns, ergonomics, and the effects of pre-existing disease on performance. He has conducted investigations into aviation-specific concerns including hypoxia, spatial disorientation, and visual and vestibular illusions. Dr. Garber has specific expertise evaluating subtle cognitive impairment and the role it plays in complex accidents. He has held a private pilot certificate since 1996.

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DALLAS REGIONAL REPORT First AIA Regional Reception A Success

The Aviation Insurance Association hosted its first regional reception, June 27, at the Cavanaugh Flight Museum in Dallas, Texas.

The event welcomed more than 60 attendees, with 25 of those individuals’ first-time attendees at an AIA event.

The keynote speaker during the event was Anthony C. Roman, the founder and CEO of Roman & Associates, Inc. who shared his insight on the flaws in airport safety.

Following the meeting, the attendees enjoyed a cocktail reception. AIA would like to thank Past-President, Paul Leonard; past claims director, Nic Stratta and member Craig Ketchum for their assistance in making our first reception a success. Please join us for our next regional reception, Sept. 28 in Atlanta.

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PRESIDENT PAUL HERBERS Cooling and Herbers pherbers@coolinglaw.com

VICE PRESIDENT JAMES GARDNER The James A. Gardner Company, Inc. Jim.Gardner@jagardner.com

TREASURER JON DOOLITTLE Sutton James, Inc. jdoolittle@suttonjames.com

SECRETARY ERNEST DE SPAIN W. Brown & Associates EDeSpain@wbais.com

DIRECTOR OF AGENT & BROKERS DIVISION LUKE UITHOVEN Kimmel Aviation Insurance Agency, Inc luke@kimmelinsurance.com

DIRECTOR, ATTORNEYS’ DIVISION NICOLE WOLFE STOUT, ESQ Strawinski & Stout, P.C. nws@strawlaw.com

DIRECTOR OF CLAIMS DIVISION STEVE TELLER Aviation LS steve.teller@aviationls.com

DIRECTOR OF INTERNATIONAL DIVISION BRUCE CARMAN bcarman7@googlemail.com

DIRECTOR, UNDERWRITERS’ DIVISION GREG STERLING

DIRECTOR-ELECT, AGENT & BROKERS DIVISION CHRISTOPHER ARNOLD,

AIG greg.sterling@aig.com

Sutton James, Inc. carnold@suttonjames.com

DIRECTOR OF REINSURANCE DIVISION IAN WRIGGLESWORTH Guy Carpenter & Company Ltd ian.wrigglesworth@guycarp.com

DIRECTOR-AT-LARGE CHRISTOPHER MORIN Murray, Morin & Herman cmorin@mmhlaw.com

DIRECTOR-AT-LARGE MATT ROWLEY Berkley Aviation, LLC mrowley@berkleyaviation.com

IMMEDIATE PAST-PRESIDENT DAVID SALES Ed Broking LLP david.sales@edbroking.com

AIA EXECUTIVE DIRECTOR MANDIE LOROFF Aviation Insurance Association mandie@aiaweb.org

AIA GENERAL COUNSEL RAY MARIANI Murray, Morin & Herman raymarianilaw@gmail.com

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CLAIMS DIRECTORS REPORT

SAME SIDE OF THE NET

STEVE TELLER - Director of Claims Division

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t our annual conference I am always reminded of the team, the dream team, effort which goes into providing our Insureds with the product that we are all so proud of completing. From policy construction to underwriting, to rating, to brokering and servicing, to claims, and with our experts and legal team, we all play our vital roles. And we are all on “the same side of the net” fighting the common foe: the loss which we know will one day come and wreak havoc.

OK, put in the clutch and shift metaphors (no extra charge).

Picture yourself sitting in very good company in your favorite restaurant where you go for special occasions. Sitting comfortably at your favorite table, watching the sun go down, enjoying a drink, your waiter arrives. He knows your name, he knows what you do. You don’t need a menu, you order what you always do, a Caesar Salad, dressing made fresh at the table (raw yolks be damned) and bone-in ribeye, medium rare (what fat? that’s “marbling”). And by and by he returns, and on a silver platter he brings you a placard, like what is on a cereal box, with the nutritional values of the steak, accompanied by an 8 by 10 picture of it, all in a nice bound folder. You savor the moment. Then they bring your car around, you tip the driver and go home, more than satisfied, and looking forward to coming back soon. Good times!

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(Take out clutch and Cue the sound of grinding gears) Well that is precisely what our product looks like after a significant check is cut or the premium is financed. The reason our customers buy their policy may be necessity-driven by a bank, an airport or a governmental agency, but most of the time it is through prudent financial planning and risk management, and it is the ultimate sleep aid. It is a meal the customer hopes he will never eat, and its placard and picture are put in a drawer unread. Until…

…Until the moment, the sometimes very fateful moment when everything changes, and the paper-product turns into the one thing that can help, that must help. Now everything is based on a nurtured relationship as the Insured calls his broker, and a new relationship begins with the loss adjuster. At that point for the Insured, the adjuster is the product. From a simple hangar rash to a total loss with multiple fatalities, the loss adjuster is the point of contact, the life-line (yes I want to use my life line) to getting the matter in hand and resolved. Here I and my colleagues on the claims side have the opportunity for the customer to end up grateful and satisfied to go on to recommend his broker and his carrier to his friends, or for him to aggressively do the opposite. Here reputations are made or lost for all of us.

Most claims proceed neatly and predictably and resolve well for all concerned. Most people are reasonable and appreciative. There are alas a few, as in any endeavor, who are not and who from the outset are confrontational. One loss comes to mind in which the carrier chose wisely to retain an expert early on to help in the subrogation effort, which would also help the Insured with his claim for uninsured losses. His first response to me on point was “that’s their expert, not mine; we both know what they are going to do.” No good deed goes unpunished.

I worked very hard, overtime, to not be the adjuster stereotype he brought to the table, perhaps rightfully, due to a previous unfortunate experience. My go-to line which I used then, and more importantly really believed was that we’re on “the same side of the net” here. The enemy was not his company, and surely not lovable me, but the damages, the injuries, the cause of the accident, the down time.

I say it often in many contexts, and it is on the short list of things that I hope sticks when I am training new people. It means doing my homework, maybe calling the broker for some insight on the Insured, maybe the underwriter for some insight on the broker (sorry couldn’t resist). It means all of us doing out part, the Insured providing his documentation, we and the expert getting to the bottom of things, the repair facility staying on task, the attorney standing guard. We are a team, a dream team. We are “on the same side of the net,” Mayday Mayday AOG! Now admittedly there are challenges: if coverage is at issue, if the fair measure of loss in the Insured’s eye is twice the competitive quote, depreciation (a word no one seems to have learned in school) or diminution specifically excluded. Here

it seems like the paradigm shifts, but not in spirit. We can’t choose our facts and the policy is not written as we go along, but statistically these situations are far and above in the minority. And even in these instances, if the Insured knows that we and the carrier had an open mind, and that every stone was turned looking for coverage and not for how to deny it, while they may still not invite us to turkey dinner (I always invariably return to a food metaphor), they may in a moment of clarity say that the decision was well...err…fair.

“My go-to line which I used then, and more importantly really believed was that we’re on “the same side of the net” here.

The enemy was not his company, and surely not lovable me, but the damages, the injuries, the cause of the accident, the down time.”

When the policy is placed or renewed, perhaps this positive philosophy, this team concept, this mantra, can be introduced or reaffirmed. We are not selling just a piece of paper, but a team, and (sing it if you know it) we are all “on the same side of the net.”

For I and my colleagues on the claims side we must live the mantra and make it tangible. It is time for him to have that juicy steak, time for the ambiance and for the attentive waiter.

Time for us to deliver on what was really purchased, and what is our great privilege to deliver.

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EDUCATION UPDATE

TALENT

DEVELOPMENT ERIC BARFIELD - AIA Education Committee Chairman

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’m concerned.

How did I get to be one of the “veterans” at AIA? Seems like last year I was attending the First-Timer’s reception in San Antonio. But that was actually 1999. A date Prince once sang about being way in the future.

What really concerns me these 18 years later is our next generation of aviation insurance professionals. I’m not concerned about them as if they are somehow inferior and won’t have what it takes to succeed. My trepidation is actually about us and our own ability or interest in helping recruit them and then train them to be our replacements.

This side of the Great Recession, we’ve all been working under the mantra, “Do more with less.” Unfortunately, one of the first things to go with reduced resources is often an effective commitment to talent development. We’re all so busy trying to survive the task saturation of the day that the last thing we have time or energy for is to pour into our industry newcomers. This is a mistake on our part because who’s going to professionally handle our clients one day in such a way that, once we’re gone, we’ll never be missed?

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With a nod to my current employer, I guess, there is however always hope. I’m excited to see your AIA making a significant commitment to sustain and even ramp up its education efforts.

Not many will fully appreciate the tremendous effort put forth behind the scenes by AIA staff and the 2016 Pinnacle recipient Doug Johnson to update and re-brand the CAIP foundational course now known as “Aviation Insurance Core Principles & Concepts.” The course has so far been presented twice with our first new CAIP designees recognized at the AIA conference in San Diego.

The Association is now exploring ways in which to make this course, as well as other educational opportunities, more broadly available in an effort to reach deeper into our industry’s talent pool with meaningful, affordable professional development. These opportunities should be on the radar of hiring executives who are willing to invest early on in their new hires’ future and not just default to “OJT” as their sole training program.

But without a steady stream of new talent being attracted to our little profession, we’ll still be behind the power curve when tomorrow arrives. I don’t think anyone grows up aspiring to be

“An aviation insurance career is actually exciting. There is so much happening at so many levels with drones, space, public and private air transportation and all the technology and infrastructure that supports them.” in the aviation insurance business. I know I didn’t. I didn’t even know it was a thing until my best friend from college went to work as an aviation underwriter right after graduation. I busted his chops about choosing such a benign field and being an “insurance geek.” One year later, however, reality set in for yours truly so I called my buddy up to ask him more about aviation insurance because I needed a steady paycheck.

ONLINE MEMBERSHIP DIRECTORY

Turns out, it’s not a bad gig. We get to talk about airplanes – some of us even get to fly, meet interesting people, maintain decent hours, and there typically is a relatively steady paycheck. This is a message worth sharing with young people who have an interest in aviation and are looking for viable career alternatives with tremendous opportunities for growth. That’s what our industry has to offer and more.

An aviation insurance career is actually exciting.

There is so much happening at so many levels with drones, space, public and private air transportation and all the technology and infrastructure that supports them. Current advances and future plans create new risk management challenges and opportunities that will require a more sophisticated approach by well-educated, well-rounded thinkers who can find mutually-profitable solutions for clients and the companies who help protect them.

So, who’s your replacement? And, what are you doing (or going to do) about attracting them to this industry then helping prepare them for success? Your AIA is ready to partner with you and make high-quality, practical educational content available for those willing to make the investment in the resiliency and continuity of their company by attracting and training the next generation of aviation insurance professionals.

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 Executive Director, Mandie Loroff at mandie@aiaweb.org.

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Core principles

conference SEPTEMBER 29 - OCTOBER 1, 2017 Aviation Insurance Core Principles & Concepts

ONLINE REGISTRATION IS NOW OPEN Aviation Insurance Core Principles and Concepts, the new course written by aviation insurance professionals for aviation insurance professionals and taught by industry leaders is now available!

This new course will replace the Aviation Insurance 101 and Aviation Insurance and Risk Management courses. If you wish to earn the Certified Aviation Insurance Professional Designation, you MUST take this course.

REGISTRATION The cost to register for the class is $600 and $150 for the final exam if you are a member of AIA. If you are NOT a member of AIA, the cost to register is for the class is $950 and $350 for the final exam. MEMBERSHIP DUES ARE $140.

WHAT’S INCLUDED WITH REGISTRATION • •

• • •

All course materials Eligibility for up to 16 CIE credits. If you need credits in a specific state, please AIA headquarters This course IS eligible for adjusters credits in some states!

Breakfast, Lunch and refreshments Completion of the course in a weekend with face-to-face instruction by the course creators ORIGIN AL IMAGE PROVID ED COUR TESY OF BOMBA RDIER INC.

FOR THE FULL SCHEDULE, PLEASE VISIT THE AIAWEB SITE AT

WWW.AIAWEB.ORG

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ATLANTA HOTEL

LE MERIDIEN ATLANTA PERIMETER 111 Perimeter Center West Atlanta, GA 30346 For Reservations, please visit bit.ly/coreprinciplesatlanta Group rates are available until September 4, 2017 The discounted room rate for the class will be $105.00 (plus tax).

This rate will be valid until Sept 4, 2017 or until the room block is sold out. Reservations made after that date will be accepted based on availability.

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Aircraft Insurance 2017 Insufficient coverage is among key concerns KIM ROSENLOF - Aviation International News Reproduced by kind permission of AIN Publications

2017 AIA Annual Conference Overview

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nadequate liability limits can leave aircraft owners personally exposed, according to Jonathan Stern, an aviation attorney with Schader Harrison Segal & Lewis. Stern spoke during the opening session of the 2017 Aviation Insurance Association (AIA) conference held April 30 to May 2 in San Diego, Calif.

Stern says that unlike airlines, which by law must carry liability insurance with minimums of $300,000 per passenger and $20 million per occurrence, general aviation aircraft owners or operators are not required to carry liability insurance except in a handful of states. He cited a 2015 study by the U.S. Government Accountability Office (GAO) that only 11 states required aircraft owners/operators to carry some variation of liability insurance or financial responsibility. While the states differ in who must carry insurance and how much, the GAO found the typical general aviation policy set at $1 million limit of liability, sublimited to $100,000 per passenger.

The problem with low liability limits in aviation is that an accident befalling even a relatively lowly GA aircraft can generate awards far exceeding the policy limit. Stern cited a recent case in which a jury returned a $16.6 million verdict against

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a Cirrus SR22 owner involved in an accident near Frederick Municipal Airport (KFDK) in October 2014. While entering a 45-degree downwind to the airport, the Cirrus collided with a Robinson R44 Raven that was departing the traffic pattern.

The Cirrus pilot deployed the aircraft’s ballistic parachute and both occupants walked away from the accident with only minor injuries. The three occupants of the Robinson—a flight instructor, commercial pilot and passenger—were killed. Stern, who served as counsel for the Cirrus pilot, noted that a subsequent ruling brought the judgment down to about $14 million.

“The insured finds him or herself in a situation where there’s not enough insurance,” Stern said. “In a case like the one [above] with a $14 million judgment, the insured may find him or herself in bankruptcy.”

Unfortunately, the options for the general aircraft owner/ operator may be limited and out of the insured’s control. The 2015 GAO study found that policies with limits higher than the typical $1 million per occurrence/$100,000 per passenger were not prevalent in the marketplace.

“Clients who find themselves with an inadequate insurance liability limit have told me that they wanted more insurance but could not get it,” said Stern. “So there is incentive [by the insured] to develop a bad faith claim against the insurer, or recourse against the broker: ‘Why did my broker sell me a policy that only provided a $1 million limit?’”

Other issues with low-limit policies can arise in situations with multiple claimants where the policy limit is exhausted by settling one claim, leaving nothing left to defend or settle additional claims for the same accident. In many jurisdictions, the first party to settle receives the money, even if it exhausts the limits as long as the settlement is reasonable. Stern says that especially in wrongful- death cases, insurers are willing to offer policy limits early in the process to settle the first claim, leaving the insured without coverage or defense on additional claims.

“The majority rule is that the insurer can stop providing a defense after they’ve exhausted their liability limits through the payment of settlements or judgments that result in the release of one claim or one insured,” Stern said, noting that an insurer would violate its duty of good faith by settling a claim for more than it’s worth just to terminate the duty to defend. In some jurisdictions, however, the insurer’s duty to defend doesn’t end until a judgment has been assessed. “In the case of an insurer that has very low limits, therefore very little at risk, but has to defend the case all the way through trial, it’s likely that the insurer will err on the side of doing more defense than it might if its money were at risk [to avoid] a bad-faith claim.”

Stern says that the insurer does not have to accept the first demand within limits or the first reasonable demand. It can choose something in between, looking for the best deal for the insured. The insured does not have to wait for every claimant to file a claim. “So if you have five potential claims, and you’re talking to two of them, you can settle one before the other three have even hired counsel,” Stern said. “The insured does not have a duty to notify those potential claimants about settlements with others, and the non-settling claimants generally have no basis for a bad-faith claim against the insurer.”

For operators flying overseas, U.S. insurance policies may need to be revised depending on specific liability limit minimums and wording required by various countries. For example, the European Union (EU) aircraft insurance liability minimums, which apply to all aircraft (commercial and no commercial) operating in EU airspace, can be much higher than the limits set on standard U.S. policies. The EU limits are calculated in special drawing rights (SDRs, the currency of the Internation-

al Monetary Fund) according to the maximum takeoff mass (mtom) of the aircraft in kilograms.

Using April 2017 exchange rates for SDRs to USD, the EU minimum insurance on business aircraft ranges from US$9 million (7 million SDR) for aircraft up to 6,000 kg mtom (Citation Mustang, PC-12), to US$200 million (150 million SDR) for aircraft of 25,000 to 50,000 kg mtom (G550, Global Express).

For all sizes of aircraft EU per passenger liability minimum is US$342,000 (250,000 SDR).

Attorney Jonathan Stern warned attendees that the low liability limits in aviation could leave them without enough insurance in the event of a crash.

LOCK IN TODAY’S LOW RATES While reporting on the state of the aviation insurance industry at the AIA Conference, Global Insurance CEO Jack Kuhn said he is starting to see signs of the re-insurance market firming, while underwriting profitability remains challenging in some lines of business.

“There is now ample capacity to meet expected re-insurance demand,” said Kuhn, noting that global reinsurer capital rose to a new high of $595 billion early this year. “But there is some anecdotal evidence of markets withdrawing or reducing involvement in response to the current environment. The general market remains soft, inspiring broadened terms and requests for multi-year covers at renewal. We’ve pushed through some coverage through the end of next year, which provides revenue stability for us and certainty of having coverag in place for our insureds.”

According to charts Kuhn provided during his presentation, in 2015 the aviation insurance industry collected gross estimated worldwide premiums of $4.62 billion, with 51 percent paid by general aviation, 34 percent by airlines and 15 percent by aero-

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AWARDS & RECOGNITIONS space companies. Compare this to historical estimates provided by Allianz Global Corporate and Specialty (AGCS) that indicates worldwide aviation insurance premiums of $5.85 billion were collected in 2005. While all segments have seen reduced gross premiums collected compared with the numbers from 10 years ago, general aviation has reduced the least in terms of percentage ($2.36 billion now versus $2.60 billion then, 9.2 percent less) while airlines have seen a dramatic 27-percent decline in overall premiums collected ($1.56 billion now versus $2.15 billion in 2005).

Immediate past AIA president David Sales, right, awards Todd Fallbacher the CAIP designation.

As part of its annual conference, the AIA recognized several members for their recent or lifelong contributions to the aviation insurance industry. The Pinnacle Award went to Scott Brown, president of W. Brown and Associates Aviation Insurance Services of Irvine, Calif. A second-generation insurance professional, Scott Brown received the Pinnacle Award 24 years after his father, Bill Brown, received the AIA’s first Pinnacle Award in 1993.

The association also recognized six members who earned the Certified Aviation Insurance Professional (CAIP) designation: Bryant Dunn, Todd Fallbacher, Stacey Field, Diana Gaylor, Annette LaRue and Christopher Sheau. In addition, the AIA unveiled a Wells-Chadbourne Award, which grants $1,000 to the individual with the highest score on the Aviation Course Section of the CAIP exam. To win the Wells-Chadbourne award, the individual must have completed all CAIP courses and be an AIA member in good standing.

Two other $1,000 education-based awards have been established for AIA members who obtain the highest score on the Aviation Insurance and Risk Management Course (AIRMC). The Distinguished Graduate Award will be awarded to the AIA member with the highest AIRMC score who has been employed more than five years in the aviation insurance industry; the Academic Excellence Award will be awarded to the member with the highest score who has been employed less than five years in the industry. Nineteen members were also inducted into the AIA’s Eagle Society.

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This illustrates one problem that the aviation insurance industry has lamented for the past few years: costs are rising without commensurate increases in gross premiums. With the industry saying it is struggling to return to profitability, insureds might begin to see premiums rise soon.

“On the aviation side, we hope we’ve hit bottom on pricing,” Kuhn said. “We’re starting to see signs that we might be having a shift. The overall aviation insurance market did not see any pricing corrections last year as there were too many markets chasing too few opportunities. Hopefully we will see a hardening mentality this year.”

INTERNATIONAL OPERATIONS According to Mitchell Young, senior v-p and eastern general aviation manager at United States Aircraft Insurance Group (USAIG), while many policies provide “worldwide” coverage, operations in some countries may implicitly or explicitly be excluded in the policy language, especially if the policy is being written outside the U.S. If the policy has a Kiln geographic exclusion clause, certain countries in Africa, the Middle East and Asia are often explicitly excluded from coverage. Sometimes just a region of a country, such as “the Far North Region of Cameroon” and “North Sinai Province of Egypt” are excluded. The Kiln clause also implicitly excludes countries through a statement that specifies “any country where the operation of the insured aircraft is in breach of United Nations sanctions.”

However, Young says that there are ways to cover operations in Kiln-excluded countries. “There are exceptions,” said Young.

“A primary one is flight over those countries in international corridors that are recognized by ICAO, and there’s an exclusion for forced landing. Also, any exclusion can be removed before the flight by agreement with the underwriter or slip leader.”

Young identified 14 countries that require their own insurance certificates to conform with special form or wording requirements and seven countries outside the EU that require minimum liability insurance requirements. Some countries, such as Canada, Mexico, Turkey, the United Arab Emirates and Venezuela, have both minimum liability and special wording requirements. Because of the varying requirements from countries around the world, Young recommended that aircraft operators work with international handlers before flying into a new country.

“These handlers, such as Universal and World Fuel, have departments with 12 to 14 people in them that track the insurance and documentation requirements [of various countries] every day,” said Young while showing a map with 50 countries colored in. “This gives you an idea of the breadth of the world that requires some special handling, such as an insurance certificate or territorial exclusion.”

Aircraft registered in the U.S. but conducting operations in certain other countries may encounter some difficulties obtaining insurance—even if the coverage is available—because of sanctions placed on certain countries, regimes and even private individuals by the U.S. Office of Foreign Asset Control (OFAC).

This U.S. Treasury Department office can block the transfer of goods and services to sanctioned countries and seize property of sanctioned foreign nationals as soon as it enters the U.S. The sanctions also prohibit U.S. companies from entering into transactions with some 5,500 companies and individuals on the OFAC specially designated nationals (SDN) list.

“OFAC is the most significant restriction that U.S. insurance entities—and even some non-U.S. insurance entities—face when providing international insurance coverage,” said Glenn Vallach, vice president and claims attorney at USAIG. “While it doesn’t develop foreign policy, OFAC presides over U.S. sanctions laws. It interprets and provides guidance on the laws for us, and punishes us if we violate the laws…Unfortunately, insurance transactions are so complex that there are many opportunities to do business accidentally with an SDN. Our violations are often unintentional.”

SDNs can be involved in transactions as policyholders, payees, payers, lien holders, beneficiaries, brokers, co-insurers, reinsurers, claimants and even routing or depositing banks. Many of the OFAC programs are strict liability programs, meaning that ignorance is not a defense against a violation. “It doesn’t matter whether the carrier or broker knew the policy holder was an SDN,” said Vallach. “Just entering into a transaction

with the SDN is a sanction violation.”

Trade embargoes overseen by the Bureau of Industry and Security (BIS) form another significant part of U.S. sanctions programs, so BIS and OFAC work on a parallel path. “BIS considers a U.S.-registered aircraft flying into a foreign country to be an export in and of itself,” said Vallach. “So theoretically, a U.S. aircraft just flying into Cuba can be a sanction violation.”

But Vallach also noted that recent changes to 15 CFR 740.15 provide a general license exception to export restrictions for the temporary sojourn of aircraft in certain sanctioned countries, among them Cuba now. “If the travel through the sanctioned country is otherwise authorized by OFAC or BIS, then the aircraft can enter the sanctioned country and stay for up to seven consecutive days without a specific license from BIS,” said Vallach. “It also provides a general license for equipment and spare parts permanently used on said aircraft.”

While tourism to Cuba is still prohibited, 12 categories of travel are now permitted under the BIS sanctions. No OFAC specific licenses are required for authorized travel, which means the requirement for Part 135 and Part 91 operators to obtain specific licenses for each flight has been dropped, and flight crew can stay with the aircraft for up to seven consecutive days. U.S. insurance companies can now provide hull and liability insurance to aircraft operating within the sanctions limits. However, no policies, claims or reinsurance transactions can be conducted with non-U.S. people facilitating travel by third-country nationals from third countries to Cuba. Vallach said that insurance companies can now also pay claims to Cuban nationals, “where the provision of insurance-related services is authorized by general license.”

U.S.-REGISTERED AIRCRAFT OWNED BY FOREIGN ENTITIES According to Jeff Towers, v-p and general counsel at TVPX Trust Services, a significant majority of the aircraft owned worldwide are registered with the FAA since the U.S. agency’s rules and processes are “relatively predictable compared to those of some other countries.” While the registration process is straightforward for U.S. citizens, companies and corporations, foreign aircraft owners often need to jump through a few legal hoops to register their aircraft in the U.S. While the complex legal entities created by this process allow FAA registration of foreign aircraft, they can create significant insurance difficulties when it comes to making a claim.

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L to r: Jeff Towers, Vic D’Avanzo and Ken Forsyth were among the participants in a panel discussion covering U.S.-registered aircraft operated by foreign entities.

“Know your client,” said Vic D’Avanzo, senior v-p of customer care at United States Aviation Underwriters (USAU), during a panel discussion with Towers and two other insurance professionals. D’Avanzo briefly described a recent case in which an aircraft registered by a non-citizen trust generated a claim.

“After the [accident] happened and [the claim] got into our office, I did a little research on who was whom. The policy holder was Wells Fargo, which was not the aircraft operator but the trustee. We thought the owner was listed on Provision 20, but that was the lawyer who put the trust together. Nowhere on the policy did we know who our client was. Now we have a fatality, two serious injuries, total loss of the aircraft, and we’re not exactly sure who we’re talking to.”

The FAA allows U.S. citizens, resident aliens and qualifying corporations, partnerships and owner trustees to register aircraft. Corporations and limited- liability companies (LLCs) can register aircraft only if the president and at least two-thirds of the board of directors or managing officers are U.S. citizens.

The corporation must be under the actual control of U.S. citizens and at least 75 percent of voting interests must be held or controlled by U.S. citizens. All members of a partnership must be U.S. citizens.

However, the FAA accommodates non-citizen registration of aircraft through three different legal structures: owner trust, voting trust and non-citizen corporations. The trust structures are meant to keep title control of the aircraft in the hands of U.S. citizens through trustee relationships. In both an owner trust and voting trust, the trustee must hold title to the aircraft; an operating agreement allows the trustor to possess and use the aircraft. Non-citizen corporations can register an aircraft with the FAA only if the aircraft is based and primarily used in the U.S., and if the corporation was lawfully organized and doing business under the laws of a U.S. state.

Owner trusts are often used by non-U.S. citizens whose aircraft is based in the U.S., either permanently or temporarily.

“You might use an owner trust for the purpose of ferrying an aircraft [currently in the U.S.] to the country it’s going to be

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permanently registered in,” said Towers. “Also, since the U.S. market is hotter for selling aircraft, foreign owners will often put their aircraft on the N-registry so it’s on par with other aircraft for sale.”

Voting trusts are used by corporations and LLCs in which more than 25 percent of the voting interests on the corporation are held by non-U.S. citizens. A U.S. citizen trustee must hold 75 percent or more of the voting interest in the corporation or LLC that holds title to the aircraft.

However, sometimes these trust arrangements are used simply to register an aircraft that doesn’t even see U.S. soil. “With some of the owner trust arrangements, [the FAA] doesn’t know who’s operating the aircraft or where the maintenance records are,” said Towers. “The FAA admitted the owner trust was a very flexible way to register aircraft— maybe too flexible…So [in 2013] the agency clarified rules and imposed more responsibilities on the trustees.” Towers indicated that many of these new responsibilities require providing certain maintenance and operation information to the FAA. The panel recommended that aircraft owners use experienced aviation counsel and advisers when setting up any of these structures, and use recognized aviation trust providers and accepted structures.

“We had a large aircraft in Korea that crashed in June last year, and we’re still going through the process of cutting the aircraft up and exporting the useful parts, and disposing of the scrap locally,” said Ken Forsyth, managing director Americas for Crawford Aviation. “Dealing with the Korean customs authorities has been challenging. You’re never quite sure what the rules are in other countries until these things happen, so you have to flag the potential issues early. That’s what comes from experience— realizing and analyzing what you can do and preparing for the problems in the future.”

Burt Rutan’s Key to Safety:

Question, Never Defend A

erospace pioneer Burt Rutan, the father of many spectacular aircraft, from Voyager (round the world on one tank of gas) to SpaceShipOne (first privately built manned spacecraft to reach space and return safely to Earth), spoke candidly to a room of 500 insurance brokers, underwriters and attorneys at the 2017 AIA Annual Conference.

“I was potentially your very best customer,” Rutan said during his keynote speech. “I developed 46 different manned research airplanes before I retired in 2011, and I never bought an insurance policy for hull or liability. When you build a research airplane, it’s hard to calculate what it’s going to cost to repair it because no one has ever repaired one, so we always fixed the things ourselves. And I always felt that the test pilots of our research airplanes were my best friends. If I were going to kill 20 percent of my best friends as the insurance statistics suggested, I don’t think I would have been in this business at all… Had I insured every project, not having a claim in 47 projects*, that’s your best customer.”

Rutan’s firm, Mojave, Calif.-based Scaled Composites, has flight-tested “one new air vehicle per year on average since our founding in 1982,” according to its website. Rutan said that his personal perfect safety record* (and the reason he cites 47 projects but only 46 airplanes) comes from a mantra, “Question, never defend,” that was crystallized during a 1988 project for the U.S. government that required general review boards before flight.

“Shortly before we flew the airplane, I stopped the work,” said Rutan. “I believed that what [Darpa was] asking me to do would put my perfect safety record in jeopardy. We continually find things on research projects that could be safer and we immediately fix them. But if we convince these generals that the aircraft is safe to fly, and two weeks later I find something out that we would normally just fix, we might just say it’s safe enough. I didn’t want my people to ever defend safety. I want every one of them—whether it’s a shop guy, a test pilot, whatever—to always question whether it’s safe. In the process of writing a report to some generals to prove to them that it’s safe, you are defending, not questioning. So I stopped work.”

Rutan lamented the lack of space exploration performed by humans in the past 30 years, noting that from 1961 through 1973 nine different manned space launch systems were developed, but only three have been developed in the subsequent 44 years.

“Less than 10 years from Alan Shepard’s [1961] suborbital flight, he was hitting golf balls on the moon,” said Rutan. “The

BURT RUTAN next 10 years produced a reusable launch vehicle [the Space Shuttle], Skylab and 4.6 attempts to explore the solar system per year. Then, the next three decades, all of our systems only go where Gagarin and John Glenn went more than 50 years ago… In 2004 there were five manned space flights, and I did three of them in my little space ship with a few dozen people in Mojave (the shuttle was grounded, of course). And the world only launched two interplanetary missions per year during that 30-year time frame. Isn’t that kind of embarrassing?” [*The loss of Scaled Composites’ SpaceShipTwo in 2014 to pilot error, in an accident that claimed the life of one of the two flight crew on board, occurred after Rutan retired in 2011.

There have been other losses at Scaled Composites, but no inflight fatalities while Rutan actively participated in the company.] —K.R.

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Attorney Director’s Report NICOLE STOUT - Director of Attorneys’ Division

I

t was wonderful to catch up with everyone at the annual conference at the Hotel del Coronado. The turn-out for the conference was phenomenal and the Attorney CLE Program was one of most educational and enjoyable programs that I can recall. On behalf of the AIA Board of Directors, I want to thank all of our speakers and those that attended the CLE program for making it a great success. If you would like to view the presentation materials, they can be found on the AIA website under the Past-Conferences Section.

I want to give a special thanks to Deborah Elsasser, who has been the Attorney’s Division Director for the past two years.

Deborah has put an enormous amount of time and dedication into improving and streamlining our CLE program to ensure that we receive maximum CLE credits for the program. We will continue her work in making sure that we present topics during the CLE portion that are helpful in your practice and to provide you with a forum to discuss and learn about developments in aviation insurance law.

As many of you know, on May 19, 2017, the United States Court of Appeals for the D.C. Circuit held the FAA’s 2015 “Registration Rule,” which required owners of small unmanned aircraft operated for recreational purpose to register with the FAA, in violation of the FAA’s congressional authority. The FAA Modernization and Reform Act which was passed by Congress and signed by President Obama in 2012, explicitly stated in Section 336(a) that the FAA “may not promulgate any rule or regulation regarding a model aircraft.” The court held that the “Registration Rule” was in direct violation of the statute, and therefore, vacated the rule as applied to model aircraft.

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The court noted that the Act codified the FAA’s “long-standing hands-off approach” to model aircraft. Unmanned aircraft are defined in the Act as those that are (1) capable of sustained flight in the atmosphere; (2) flown within a visual line of site of the person operating the aircraft; and (3) flown for hobby or recreational purposes. Given the ever-increasing interest in hobby drones, and the need to ensure that recreational use of them does not jeopardize air safety, we expect this decision to spur further discussion between those interested on both sides to come up with a solution that will not compromise safety but will not unduly burden hobbyists. We will continue to follow this interesting issue.

We are looking forward to next year’s conference in Austin, and we hope that those of you who regularly attend and those that attended the conference for the first time this spring will be able to come. We are in the process of planning Regional Receptions in Dallas and Atlanta for 2017. The Regional Receptions will provide us with more opportunities to get together between the annual conferences, and will include brief speaker presentations. We hope to see you there! Over the course of the next several months, we will be putting the CLE program together for next year’s conference. If you have any topics in mind that you would like to see covered, we would appreciate your input. We also encourage our members to contribute to the AIA Binder Magazine by submitting articles on a topic of interest to be included in the publication. You can reach out to me directly at nws@strawlaw.com or to Mandie Loroff at Mandie@aiaweb.org. We are looking forward to another wonderful year!

UNDERWRITER DIRECTORS REPORT

Great Expectations – Aviation Insurance Technology

Now & Then GREG STERLING - AIG Aerospace

I’d like to begin this, my first BINDER article as your new Director of Underwriters, with a heartfelt “thank you” to outgoing Director of Underwriters and our new AIA Secretary Mr. Ernest DeSpain for all his assistance during this transitional year. I’d also like to thank outgoing AIA President Dave Sales and the entire AIA Board for their warm welcome, exceptional insights, and consummate professionalism. They have made this past year a wonderful experience for me and I look forward to working together with them to serve the AIA membership in the year to come.

The Charles Dickens classic “Great Expectations” chronicles a lifelong pursuit of greater things in the future. In much the same way today’s insurance technology (or InsurTech) holds great potential to improve the ways each of us work. While 2017 marks my first year as your Director of Underwriters it is also my thirty-first year in this great industry, (Please hold the “I think he insured the Wright Flyer!” jokes – they’re too close to the truth!). As I look back over how the tools and technology we used to conduct our business back then I see that while so much has changed, so much still remains the same. Let me begin by putting some perspective around aviation “InsurTech” circa 1986.

In 1986 the great majority of aviation underwriting business communication was handled via telephone and US mail. Bicycle couriers were still hand delivering time-sensitive documents, shuttling between the brokerage houses and underwriting firms. Every phone had a cord and sat on your desk - not in your pocket. There was no voice mail. Underwriters would return from lunch and collect their stacks of pink “While You Were Out” message slips from the receptionist and begin our afternoon call backs. Larry Rachlin was my first broker,

(and, with apologies to all, still my favorite!). Expense savvy Larry would purposely call and leave me a message at lunch so that the longer, negotiation conversation would be had on my long distance phone bill – not his!

Adding to the color scheme of our desks were rolls of telex messages on bright yellow paper. Faxes were not yet on the scene and PC’s were still about five years away. “Cut & Paste” was literally that - we created our endorsements with scissors & tape from blurry copies of prior endorsements that had been put through the “Xerox” far too many times. Our policies were then hand typed on pre-printed forms by an office pool on IBM Selectrics.

Oh, how the times have changed! Today, an Apple iPhone 5 has 2.7 times the computing power of the 1985 Cray-2 Supercomputer. But not only have the times changed – we have changed as a result. Technology has changed not only how and where we work, but the results and pace we expect from our personal and professional interactions. We have grown accustomed to an unprecedented level of convenience. Answers to inquiries are expected in minutes or even seconds rather than days. “Google” is not just a noun, it’s a verb, used to describe the process of seeking and receiving the information we want from the internet with near immediate gratification.

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While a number of industries have either lead or at least embraced the new business pace which technology affords us, the insurance industry as a whole has lagged behind. Consumer-facing insurance companies have moved somewhat faster than agency/brokerage driven companies. This is logically since their business model necessitates that they either adapt quickly to client expectations or risk suffering the fate of the 8 track tape. Direct-to-consumer (DTC) personal lines carriers now offer the ability to shop and bind online, pay with credit cards or ETF’s, download documents, and handle claims, all from a client’s smart phone with little to no person-to-person interaction required. While eliminating direct customer contact would once have been considered business suicide, in point of fact online customer service is quickly becoming the consumer’s preferred method of problem solving. A 2015 Aspect Consumer Experience Survey found that 73% of consumers wanted the ability to solve product/service issues on their own with one-third saying they’d “rather clean a toilet” than speak with customer service via phone!

As a whole the aviation insurance industry continues to be steeped in traditional values and procedures, relying on personal contacts vs. technology to deliver business. After all, the Lloyd’s insurance market began in a coffee house in the 17th century. Perhaps this is why our industry has yet to fully embrace the technology of the 21st century. Part of the reluctance is certainly cultural, but there are also financial barriers which impede the wide spread roll out of technology improvements.

Some of these can be traced to legacy financial systems which in many cases have remained static over the past two decades.

The integration of old general ledger and reinsurance accounting systems with modern client and broker-facing systems can present a myriad of challenges. Kind of like trying to integrate a cockpit with half steam gauges - half flat panels. Some things just don’t play well together.

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Still, as we look ahead to the future of technology in our industry we can see clear trends which will inescapably re-define our work. The convenience factor which we’ve come to expect belies an underlying financial driver of expense reduction. As soft market conditions truncate revenue for both broker and underwriter the removal of unnecessary transactional friction in our business processes will not only yield a more satisfying experience for client, broker and underwriter alike, but a more efficient one. The good news is that much of the available “convenience“ technology can be easily implemented without wholesale changes to legacy AMS or underwriting systems.

Broker underwriting portals, fillable pdf’s, electronic signatures are but a few of the relatively low cost ways that we can begin to transform our industry to not only meet the service expectations of stakeholders but the profitability expectations of shareholders.

Some of the resistance to technology adoption lies in the fundamental change it can bring to the workforce. “Reorganization”, “right-sizing, “down-sizing” - call it what you like, it means the elimination of positions in order to both justify the required investment in technology and reap the financial benefits therefrom. The good news however, is that as efficiencies allow businesses to compete in new areas and lines, the

natural shift from contraction to growth will produce opportunities for workers. Ryan Spinner – Digital and Innovation lead for Aviva Canada recently spoke at the Young Insurance Professionals of Toronto event – “Embracing InsurTech: A New Frontier”. Spinner commented that while technology would likely result in the elimination of some transactional roles, professionals would likely find, “more value-added propositions in the supply chain.”

In the immortal words of Bob Dylan, “The times, they are a changin’”. The cultural and financial entry barriers to new systems and new technology will continue to fall and the expectations of insurance brokers and buyers will continue to rise. As Aviation Underwriters we have a choice. We can become active managers of this transformation or risk being managed by it. By becoming adopters and drivers of disruptive technology we can either draw business to our respective doors or drive it from them by continuing the status quo.

We are blessed to work in the wonderful insurance niche of aviation, an industry which has always been a breeding ground for innovation and innovators. As 2017 AIA Keynote speaker Burt Rutan said, “When there’s ever a breakthrough, a true breakthrough, you can go back and find a time period when the consensus was ‘Well, that’s nonsense’ so what that means is that a true creative researcher has to have confidence in nonsense.” Therefore let us challenge each other and our respective companies to believe in a bit of “nonsense”. To believe that, despite historical, cultural, and financial barriers, we can become drivers of better technology to the benefit of our brokers and clients. They have “Great Expectations” of us. Let’s not let them down.

References: Charlton, Graham - November 25, 2013 “Consumers prefer live chat for customer service: stats” econsultancy.com Cohn, Carolyn - February 15, 2015 “Reports Show Insurers Lag Behind in Adopting Technology” Insurance Journal Online Morris, Trica - October 9, 2015 “13 Shocking Customer Service Statistics” parature.com “Processing Power Compared” experts-exchange.com Stelmakowich, Angela - May 19, 2017 “Technology advances to change insurance value chain, offers chance to reboot” Canadian Underwriter

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aviation history

GA Accident History and its effect on

Premium

ALEX WELLS - AIA Education Consultant

I

n my last Binder article entitled Market Cycles and Competition, I contended that the aviation insurance market would contract as a result of too many insurers chasing a declining number of insurable units; a classic case of overcapacity and its effect on premium rates.

U.S. GA Aircraft Accidents (Selected Years) Year

ALL ACCIDENTS

FATAL ACCIDENTS

1946

7,618

690

1960

4,793

429

1990

2,247

444

2000

1,837

345

In this article, I will discuss 2013 1,222 221 the relationship between the improvement in safety and its impact on premium volume. Let me start off by showing a sketch of the accident statistics over the past 67 years from 1946 to 2013.

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Volume U.S. GA Aircraft Accident Rates (Select Years) (Rates per Million Flight Hours) Year

Flight Hours

All Accidents

Fatal Accidents

1946

9,792

77.80

7.00

1950

9,667

46.60

5.10

1960

13,132

36.50

3.27

1970

26,033

18.10

2.46

1980

36,481

9.86

1.69

1990

28,510

7.85

1.55

2000

27,838

6.57

1.21

2010

21,668

6.63

1.24

2013

20,867

5.85

1.05

Total GA aircraft accident rates per million hours flown have plummeted over the years dropping from 36.50 for all accidents and 3.27 fatal in 1960 to 5.85 total and 1.05 in 2013. This represents an 83 percent drop in total accident rates and a 68 percent drop in fatal accident rates over 53 years. If we consider the reduction from the immediate post WWII period, the rate reductions are even more pronounced.

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Reviewing the total accidents of 4,793 in 1960 and 1,222 in 2013, we find the reduction is close to 75 percent for total accidents and 48 percent in fatal accidents. Clearly, the improved results for total accidents and rates have been attributed to the dedicated effort by government at all levels, the manufacturers, service providers, insurance industry, and users in developing a safe and efficient general aviation industry.

Federal responsibilities for airway and airport development grew tremendously during World War II, leading to passage of the Federal Airport Act of 1946. Federal financial assistance to states and municipalities was initiated at this time. The federal government assumed responsibility for air traffic control (ATC). However, the Civil Aeronautics Authority (CAA) inspection force could not keep pace with the rapidly increasing number of new airlines, pilots, and aviation-related facilities.

Flight instructors were permitted to certify pilots and certify airplane repairs by an approved mechanic. After the war and into the early 1950s, the CAA limited its aircraft certification and inspection role to planes, engines and propellers. Manufacturers were responsible for ensuring that other aircraft parts met CAA standards.

Fatal crashes in the late 1940s and early 1950s prompted revised standards setting minimum acceptable performance requirements that were designed to ensure continued safe flight and landing in the event of failure of key aircraft components. These standards also distinguished small and large airplanes based on existing airplane and power plant design considerations. Small airplanes were those with a maximum certificated take-off weight of 12,500 pounds or less; airplanes above 12,500 pounds were defined as large.

The impending introduction of jet aircraft and a 1956 midair collision over the Grand Canyon involving a DC-7 and a Super Constellation was a monumental event that helped promote congressional authorization in increased levels of safety related research and more federal inspectors at all levels of the aviation industry. In 1958, Congress passed the Federal Aviation Act, which established a new aviation organization, the Federal Aviation Agency. Assuming many of the duties and functions of the

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CAA and the CAB, the agency was responsible for fostering air commerce, regulating safety, all future ATC and navigation systems and airspace allocation and policy.

The CAB was continued as a separate agency responsible for economic regulation and accident investigations.

However, the Federal Aviation Agency Administrator was authorized to play an appropriate role in accident investigations. In practice, the Federal Aviation Agency routinely checked into accidents for rule violations, equipment failures, and pilot errors. Moreover, the CAB delegated the responsibility to investigate nonfatal accidents involving fixed-wing aircraft weighing less than 12,500 pounds to the Federal Aviation Agency.

The safety provisions of the 1958 Act restating earlier aviation statutes, empowered the agency to promote flight safety of civil aircraft commerce by prescribing: 1. Minimum standards for the design, materials, workmanship, construction and performance of aircraft, aircraft engines, propellers and appliances.

2. Reasonable rules and regulations and minimum standards for inspections, servicing, overhauls of aircraft, aircraft engines, propellers and appliances including equipment and facilities used for such activities. The agency was also authorized to specify the timing and manner of inspections, services and overhauls and to allow qualified private persons to conduct examinations and make reports in lieu of agency officers and employees.

3. Reasonable rules and regulations governing the reserve supply of aircraft, aircraft engines, propellers, appliances and aircraft fuel and oil, including fuel and oil supplies carried in flight.

4. Other reasonable rules, regulations or minimum standards governing other practices, methods and procedures necessary to provide adequately for national security and safety of transportation by air.

In 1966, the Federal Aviation Agency became the Federal Aviation Administration when it was transferred to the newly formed Department of Transportation (DOT).

The National Transportation Safety Board (NTSB) was also established to determine and report the cause of transportation accidents and conduct special studies re-

lated to safety and accident prevention. Accident investigation responsibilities of the CAB were moved to the NTSB who may turn over accident investigations involving light aircraft to the FAA. During the 75-year history of federal oversight, federal regulatory and safety surveillance functions have been frequently reorganized and redefined. Moreover, public concerns about how the FAA carries out its basic functions have remained remarkably constant despite a steadily improving aviation safety record as demonstrated in the outset of this article.

As the 1950s turned into the 1960s, general aviation manufacturers were developing aircraft with unmistakable stability and purpose. Though pleasure flying was far from extinct, it was clear that the general aviation airplane was developing into a viable means of business transportation. General aviation had become a major part of the nation’s transportation system with an inventory of light aircraft that were fully capable of flying people in comfort 1,500 miles in one day to thousands of

places not served by the commercial air carriers.

Safety strategies between the FAA and all segments of general aviation have been a major focus over the subsequent years. While this continuing effort has been exemplary it along with excess capacity caused by additional competitors entering the insurance market, has put a downward pressure on premiums.

Unfortunately, over the past years, awards have increased significantly as well as administrative costs, claims handling and expenses related to reinsurance.

Concurrently, in recent years, insurers have experienced low interest and poor bond yields. The result has been a squeeze on profits.

There is no question in my mind that in the not too distant future, we will experience a winding down in the number of aviation markets. This phenomenon is not unlike other periods in the history of aviation insurance.

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BY ALEX WELLS APRIL 2017

By Alex Wells April, 2017

1 Actions which injure a persons reputation 10 The act of going out 11 _______ NOL. Cambodian General and two-time Prime Minister 12 180 degrees opposite to WSW 14 To conduct oneself 15 _______ Jolson. Early 20th century American singer, actor and comedian 16 Highest enlistment rank (E-7) in the U.S. Navy 18 Time it takes to arrive (abv) 20 The capital and largest city of this State is Des Moines (abv) 22 Nicknamed the big sky country, the capital of this State is Helena (abv) 23 To relinquish or transfer title to via signature 25 Two famous early aviation pioneers were born in this State (abv) 26 An armed service of the United States (abv) 27 Highest rank in the U.S. Navy 28 Same as #12 across 30 A long, light ship’s boat 32 Variation of I am

1 2 3 4 5 6 7 8 9 13 17 19 21 24 29 31 33 35

A federal agency whose mission is to enforce the controlled substance laws A form of liability insurance To be the proper size and shape Used to indicate location in time Closely related In the direction of Incorporated (abv) Not either A form of benefit plan The capital of this State was named after the 16th President (abv) Health Maintenance Organization (abv) Attorney General (Abv) Another name for GVS coverage The second atomic bomb was dropped on this city on August 9, 1945 _______ Armstrong. First person to walk on the moon Person who delivers ice Gloster who built first British jet fighter Commonly, a Bedouin

34 35 37 39 40 41 43 44 46 48 49 51 52 54

_______ Grange. Football player known as “The Galloping Ghost” Used to express surprise, satisfaction or pain 39th President of the United States (1977-1981) To move from a lower to a higher position Designator for the airport serving the capital of New Jersey A unit of weight (abv) A State located in the Southeastern United States and home of the Razorbacks (abv) WWII RCAF pilot who wrote “High Flight” Highly decorated soldier and Prime Minister of Israel from 1999-2001 To perform or execute A leading global provider of risk management and insurance brokerage (abv) Something distinctly smaller than others of its class An American multinational insurance corporation (abv) Slang term for a U.S. military person (abv)

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_______ Maxim. Developed a steam engine powered flying machine in 1889.

Medical professional (abv) Medal of honor recipient and highest-scoring air, ace in WWII An organization founded in 1975 to support airlines flying into smaller communities (abv) An amendment or addition A lubricant A combat pilot who has destroyed many enemy planes A matter of very low density and viscosity Insurance (abv) Capital of Arkansas (abv) Regular Army (abv) Leading State in aerospace manufacturing (abv) A political-economic alliance of 28 member States primarily in Europe

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SAVE THE DATE NOVEMBER 9TH, 2017

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