THE BINDER | Vol. 46 No. 1 | Winter 2021 by Aviation Insurance Association

VOL. 46 NO. 1 - WINTER 2021

A NEW CHAPTER

AN ENERGIZED VISION SINGLE PILOT OWNER OPERATORS UPPING THEIR SAFETY GAME INTERNATIONAL NEWS

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IN THIS ISSUE Editor KIM ROSENLOF

AeroInk Incorporated

President’s message

CLAIMS REPORT GROUND HANDLING

AGENT/BROKERS REPORT GIVING THANKS

ATTORNEYS REPORT AMICUS CURIAE

SAFETY REPORT SINGLE PILOT OWNER OPERATORS UPPING THEIR SAFETY GAME

WHERE ARE THEY NOW

DAVID BINKS

OH, CANADA!

WOMEN’S INITIATIVE REPORT

INTERNATIONAL NEWS

REINSURANCE REPORT REINSURANCE PRICES ON THE RISE

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SAVE THE DATE - 2021 CONFERENCE

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.

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

PRESIDENT’S MESSAGE JIM GARDNER - AIA PRESIDENT, The James A Gardner Company Inc.

A New Chapter - An Energized Vision

AIA WANTS YOU

o glad to kiss 2020 good bye. What a year! I’ve never seen one like it in my lifetime. And, candidly, I hope I don’t see another. It is time to turn the page. I look to 2021 being full of new hope, prosperity, and progress to a more normal world. I am truly excited as to what 2021 may bring for the AIA… A new management team with a new hope and renewed energy to reach our vision of growing the association and solidifying our financial foundation.

A New Management Team – Associations International (AI) As we start a new year, we also have started a new chapter in the history of the Aviation Insurance Association. As of January 1, 2021, Associations International (AI), our new Association Management team, began what I hope will be a long and fruitful partnership. As the year progresses, I think you will see a noticeable change in the services and focus of AI toward improving what we have and growing the Association to meet the challenges of a changing world. So, why make a change in the middle of a pandemic? If 2020 did nothing else, it proved we can no longer depend on our conference as the major source of our revenue. We need to develop new

revenue streams and a larger, younger membership base. In order to accomplish this, our day-today management needs to provide more member services, resources, and marketing initiatives to meet the demands of a growing organization. We can no longer afford to be an annual conference with some education. We have started the growth beyond that, but we need to continue to grow and develop into a more complete association. AI is providing top of class membership services and professional association management to nine other Associations. They have a proven history of growing the associations they manage. The shared services with the other Associations are very robust. Adding the Aviation Insurance Association as their 10th association was a natural fit for them, and us.

HelmsBriscoe As part of the management change, we will also be partnering with HelmsBriscoe, a global leader in meetings procurement and site selection. They will be providing hotel search and contract negotiations services at no extra charge to the AIA. They book more hotels rooms in Marriott hotels than any other hotel broker in the world. It just so happens that the next three conferences are all in Marriott hotels. Good partner to have as we try to renegotiate the 2021 conference in New Orleans.

Divisions. A member survey done in December also revealed that the fall had broad support. There are some concerns around in September including potential hurricanes for New Orleans, but we will work through these. Our number one goal is continuing to provide education and ways for our members to connect safely - ideally in person. Please stay tuned for more details.

The 2021 Conference – Shooting For FALL 2021. As the pandemic plays out, it’s obvious that having a safe and successful AIA conference in the Spring is not feasible. The uncertainties around the timeline of the vaccine being available and administered is a concern. We are hopeful that the Fall may be a more realistic option. Rest assured this is one of the AIA’s Board of Directors top priorities. At our Board meeting in early December, all divisions were in favor of having a 2021 Conference. September seemed to be a good month for the International and Reinsurance

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A Vision for the Aviation Insurance Association

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Our number one focus is membership growth. With a new management team in place, we now have the support, experience, and expertise we need to improve, strengthen, and grow our Association. We will develop a strategic plan with the goals of: • • • • •

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Complete review of our membership and dues structure More virtual and “in person” education opportunities Expanded Core Principles and Concept courses to support the CAIP designation Hybrid Annual Conference to allow more people to benefit from the conference Improved utilization of our archive of Continuing Education sessions that have been videotaped, but never really adapted nor marketed for online educational opportunities Improved Binder focusing on expanded distribution and advertising opportunities

•

Improved and more frequent use of social media Improved use of our website to provide membership services and revenue opportunities Development of other non-conference revenue streams

Everything is directed toward membership growth.

The AIA Wants You! Like your aircraft insurance, your membership must be renewed annually. If you have renewed your membership by paying your 2021 dues, thank you. If you haven’t renewed your membership, please do today. If you are not a member or have let your membership lapse, please join us. To paraphrase John F. Kennedy, “Ask not what your Association can do for you, ask what you can do for your Association!” Be A Member!

AIA UPDATED CONTACT INFORMATION: Aviation Insurance Association 2365 Harrodsburg Road, Suite A325 Lexington, KY 40504 Info@aiaweb.org | 866.939.0934

aiaweb.org 4

Overview of HelmsBriscoe HelmsBriscoe is the global leader in meetings procurement for a variety of corporate, association and government clients. Spanning more than 55 countries, the company’s highly respected network of more than 1,400 procurement specialists booked 6.6 million room nights, resulting in $1.36 billion in room revenue, in 2019. Using their proprietary technology, collective market knowledge, and volume-based purchasing power, HelmsBriscoe streamlines the meeting planning process by managing the time-consuming task of researching, contacting, and evaluating venues for client events. HelmsBriscoe facilitates the venue research and contracting processes, thereby mitigating the risk and increasing the return on their clients’ meetings.

MEET Jennifer Romine Jennifer Romine can testify to the benefits HelmsBriscoe can offer in meeting planning assistance. A meeting and hospitality veteran since 1995, Jennifer received her bachelor’s degree in Hospitality Administration from Georgia State University and immediately entered the meetings industry. Her first eleven years of experience were spent planning corporate and association meetings ranging from ten to 3,500 people. In the seven years of working with HelmsBriscoe as a client prior to joining the company in 2007, Jennifer found that using the meeting procurement firm allowed her to focus on other aspects of her job while still “raising the bar” on the overall event outcome. Now with nearly 15 years of assisting clients at HelmsBriscoe, Jennifer’s attention to detail, contract negotiation skills and understanding of the meetings industry will help AIA expand our meeting and conference capability over the next several years.

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Introduction to Associations International Associations International (AI) is recognized as an industry leader in helping professional and trade associations build membership, promote their missions, and seize opportunities for growth. Headquartered in Lexington, Kentucky for more than 40 years, AI is accredited by the AMC Institute, the global trade association representing the association management industry, and has been named one of Kentucky’s Best Places to Work for the last eight years by The Kentucky Society for Human Resource Management and The Kentucky Chamber of Commerce. “We are happy to have selected Associations International as our new association management company,” said Jim Gardner, President of AIA. “This partnership with AI will enhance the value of membership and will help AIA continue to strengthen relationships with the aviation insurance industry.” With a strong track record of addressing the needs of volunteer-driven organizations to support their missions and grow their industries, AI provides clients with a powerful advantage by nurturing long-lasting relationships built on trust, transparency, hard work and accountability. In addition to the Aviation Insurance Association, AI performs full-service management for nine associa-

tion clients representing more than 150,000 members worldwide led by a dynamic team of 150 employees with close to 800 years combined of professional non-profit management experience. A diverse portfolio of association partners allows AI to effectively share unique ideas and best practices across association clients. The company’s core team model has a proven track record for growth. Each association has a dedicated team devoted entirely to the respective organization’s success. A dedicated staff model allows each team member to become fully immersed into the association’s daily activities, learn strategic goals and provide the highest level of customer service to members. In addition to the core team, shared service resources equipped with a wealth of subject-matter expertise (i.e., finance, human resources, technology, etc.) provide additional support. This allows core team members to focus on supporting the board and member community. “AI is proud to be one of the top 10 largest association management companies in the world—not based on the number of clients served, but rather the number of team members dedicated to client success,” said Ben Polk, Chief Financial Officer, Associations International. “AI is extremely selective when engaging new partnerships and invests the majority of its time and resources into growing the existing family of client partners. Associations International is very pleased to welcome the Aviation Insurance Association on board.”

AGENT/BROKERS REPORT

Giving Thanks

DAVID HAMPSON, CPCU, ARM, CAIP President - Schrager Hampson Aviation Insurance Agency LLC

his Thanksgiving was a quiet one for the Hampson family. We usually gather with my three siblings and our families for intimate time together at my parents’ cozy condo in Portsmouth, New Hampshire, but like many Americans we reluctantly decided to forgo that this year. Sadly, canceling best laid plans amid the pandemic has become so commonplace that I am starting to find myself becoming desensitized to disappointment. An unexpected upside to the quiet holiday was that I was able to give myself time to reflect upon the past, present and future and be thankful for my position in business and in life. Outside of family, our aviation insurance agency business is the second most important part of my life, and I want to share a few of the things I am most thankful for as it relates to that. I am thankful we own an insurance agency with a mostly recession proof business model. By all measures, the property and casualty insurance brokerage industry overall has experienced organic growth in 2020. This in-

cludes all the Main-Street-type insurance agencies that may write coverage for restaurant and hospitality clients whose businesses have been decimated. The COVID-19 pandemic is the second major economic test in less than 15 years in which our business model has proven its reliance. Such stability is unheard of in most industries and is what I believe has attracted a flood of private equity money into our industry in recent years. Despite what your opinion of private equity may be, this rising tide has benefited all agency principals in the form of higher valuation multiples. If you look at the aviation insurance brokerage industry specifically, we have done even better in 2020 than the national insurance agent and broker community at large. In this very hard market, most agencies are seeing substantial organic growth through rate increases even without an increase—and possibly in some cases despite a decrease—in policy count. Most of our clients have survived and some have even thrived in 2020. Only

a few have become pandemic casualties. Many clients have become good friends, and it would be difficult for me to see them suffer, so I am thankful that they have mostly been resilient as well. This year has undoubtedly been quite stressful as we have had to get accustomed to constantly delivering bad news to clients with their insurance renewals, but that stress pales in comparison to what restaurant, hotel and tourism-related business proprietors have faced. I owned and operated a franchise restaurant in the past and I can vouch for the fact it can be a relentless and thankless business in the best of times. As I pen this article from the comfort of my home office, I am reminded of many people in other industries who do not have the option to pivot to a “virtual business” during these times. Instead, many owners of these establishments and their employees continue to work hard to keep their businesses alive and manage burn rate as their cash resources diminish. Due to market conditions and negotiating an agency acquisition, I was so busy this year that I had to work through much of our family vacation in August and my siblings told me they felt bad for

me having to work so much. I told them not to feel bad for me because I am grateful that I need to work so much because our business is busy and thriving! I am thankful we have been able to use the insurance agency business model to offer financial stability to our staff who can in turn provide the same to their spouses and children. While so many industries, even many white collar, have been going through rounds of retrenchments, our industry continues to add jobs. I don’t think business owners give themselves enough credit for the fact that for every person they employ, they positively impact the lives of all the important people around that individual. When I reflect on the things in my business that I feel good about, shielding our staff from the economic effects of the pandemic ranks top of the list. I am thankful for the precious time I have been given as well as the opportunity to develop future contingency plans. Sadly, the principal of the agency we recently acquired passed away earlier this year at only 58 years old, leaving his wife and two young daughters behind. Though I am only 43 years old, this hit a bit too close to home, reminding me just how precious time can be. No

matter how wealthy or powerful one is, time is the one thing no one can measure by how much they have left nor is it something you can buy more of at any price. I have met too many insurance agency owners who never gave much thought to perpetuation, and ultimately had to sell their business out of necessity rather than a planned exit strategy. I encourage all agency principals to start developing a perpetuation plan now, no matter how many years you think you have in the industry. You do not want to find yourself forced into selling to an entity that is incompatible with your agency culture and/or has no interest in retaining staff who have been loyal to you for many years. Nor do you want your family to be tasked with operating and/or selling a business they do not understand when you are no longer here. Even though I expect to be at the helm of our business for at least another 25 years, I’ve been as guilty as most in not making perpetuation plans and I am thankful I have the opportunity to change that before it’s too late. While 2020 has been a prosperous year for our agency, I am thankful it is coming to a close, and that there is light at the end of the tunnel for those who have been

suffering financially and/or emotionally. There is an exciting opportunity for us to enter a better normal, a “new normal” that embraces the best technology has to offer to provide people with more flexibility, more freedom, and more opportunity in a post pandemic world. If you are an agency owner and still have not given your brick-and-mortar office the tools to operate virtually, consider that as a goal for the first half of 2021. I believe we will all need these tools to stay competitive on the other side of this. It remains to be seen how soon it will be before we can once again gather with business associates, colleagues, and friends at the various aviation conferences and events that have filled our calendars and travel schedules for years, but I believe we will be more appreciative of those face-to-face connections when we are able to safely make them again. Lastly, I am thankful that I have this forum to share my reflections of gratefulness with my friends in the industry and that I have this opportunity to wish you all a very Happy New Year!

AIA SAFETY REPORT

Single Pilot Owner Operators Upping their Safety Game Charlie Precourt - Chairman, CJP Safety Committee David Miller - Director, CJP Programs and Safety Education

ometimes it takes a rude wakeup call to spur productive action. Such was the case for the Citation Jet Pilots Association (CJP) almost four years ago. On January 18, 2016, a Citation CJ1 piloted by a CJP member, lost control on departure out of Salt Lake City resulting in a fatal accident, most likely due to disorientation after ambiguous instrument indications in the cockpit. Eleven months later a CJ4, also piloted by a CJP member, lost control during a night departure out of Cleveland resulting in another fatal accident, this time likely due to improper autopilot management and subsequent disorientation. Needless to say, 2016 was a tough year for CJP members. These were close friends we had lost, and the accidents caused a lot of soul searching about the direction of our Association. In fact, the Salt Lake City accident happened at the conclusion of a CJP “fly-in weekend” that included seminars on Citation flying techniques. Our wakeup calls became the launching point for a much more vigorous safety focus for the Association. Members of the Board of Directors met and

committed to establishing a non-profit CJP Safety and Education Foundation. The foundation would stand up a Safety Committee focused on bringing safety benefits akin to those found in corporate flight departments, even though we were a largely dispersed group of independent operators–certainly a tall order. Today we’re seeing the effort start to pay off, with some key learnings worth sharing. Formed in 2008, the CJP today is composed of 1,300 members who operate nearly 900 Citation aircraft. The majority of the members are single pilot owner/operators, although some are involved in Part 91K and Part 135 operations. Two-thirds of the member aircraft are the popular Citation 525 and 510 series aircraft (CJ 1, 2, 3, 4 and Mustang), and the remaining one-third of the “fleet” are legacy Citations (SP, Bravo, Ultra, XLS, Sovereign, etc.). With this size of membership, we recognized the CJP safety initiative would largely be an effort in culture shift. We determined that if we could model

CJ4 salvage operations, Lake Erie, December 2016 safe behaviors, our members just might listen. But how do you change behaviors in a group of successful, driven jet pilots? We coined a phrase, “we don’t tell you how to fly your airplane, we just give you some things to think about when you do.” We were pleasantly surprised by how ready the members were for the initiatives we put in place to address safety in a big way. As they say, if you can’t measure it, you can’t fix it. So, we collaborated with Textron Aviation to gather all the accident and incident data on Citation aircraft in operation (including non-member aircraft) to see what our track record had been since the inception of CJP in 2008. The pie charts summarize the data for all 525 and 510 aircraft produced. It is no surprise to those familiar with jet aircraft operations that runway excursions stand out as the dominant issue for our fleet. What may be surprising, however, is the relatively low percentage of the total accidents that were attributable to CJP members. A positive trend since the formation of the CJP Safety Committee has been no further member fatal accidents and only one injury. But the number of excursions in the last four years remains high (22 total, 6 involving members), which guided our focus on two key initiatives at CJP for 2020 and 2021. The first of these initiatives involves a scientific study of go-around decision making. This idea came to us from the Flight Safety Foundation, who introduced us to the Presage Group out of Toronto, Canada. Presage performed a study of the airlines in 2017 that showed only 3% of unstable approaches resulted in a go-around.

CJ1 Salt Lake (Cedar City), Utah, Jan 2016 They also determined that 83% of all approach and landing accidents could have been avoided with a go-around, leading to the obvious question of why the go-around compliance rate was so low. Presage discovered through interviews that a large number of pilots didn’t view the stable approach criteria as being “credible” boundaries for requiring a go-around. Too often pilots judged, for example, that being 5 knots faster than the upper limit of “stable” at the 1,000-foot altitude gate was no reason to go around, as that was easily correctable. The study conclusion was that new criteria for go-arounds were needed to accompany the long-standing stable approach criteria. At CJP we consulted with the chief pilots and flight departments at Southwest Airlines, Air Canada, and several other regional carriers who performed a detailed study with Presage and developed new go-around criteria tailored to their operations. Their results have brought a dramatic increase in the go-around compliance rates, and proportionate decrease in landing incidents. Given the positive results the airlines have seen, CJP has partnered with Presage to perform the first scientific study of go-around decision making for single pilot operations. The objective is to develop CJP Standard Operating Practice (SOP) changes that will yield a higher go-around compliance rate in our operations as well. The study begins with interviews of the member pilots, followed by convening focus groups to recommend goaround criteria pilots can “buy into.” Then we will test the output of the focus groups in simulators. Finally, the best of the resulting criteria will become the new CJP SOPs. We have engaged several partners in this study,

around study initiative and root cause analysis through FOQA has the potential to dramatically reduce our CJP accident and incident rate. The challenge with FOQA has been the difficulty equipping aircraft cost-effectively. Most Citation aircraft were not equipped with flight data recorders and retrofitting them is very expensive. However, the advances in computing and electronics have now enabled some aftermarket options that can be installed very cost effectively. CJP has already begun beta testing several of these options and is using the results to establish exceedance parameters for monitoring, as well as report formats for trend analysis. What will be unique about the CJP FOQA is it will not only provide trend analysis capability for

including Textron, Flight Safety International, and the Air Charter Safety Foundation. We also invite the Aviation Insurance Association underwriters’ involvement in the program as well, since it is the first of its kind for the single pilot operator and promises to bring significant benefit to the broader, owner-operated, general aviation community.

the total membership, but it will also provide immediate feedback to the individual pilot within five minutes of landing, which will allow “every flight to be a training flight.” In our beta testing to date, it is noticeable how much individual pilots are changing their focus to achieve consistent good results in their flying. As Steve Bruneau noted, “If we can track the costs of a lack of outcomes (accidents)—which we can, given today’s technology—then we’re really not that far away from being able to achieve objective safety analysis.”

The second initiative at CJP is Flight Operations Quality Assurance (FOQA). We were particularly pleased to read the Fall 2020 issue Binder article by Steve Bruneau and Madeline Sullivan, “Are Personalized Insurance Premiums Possible?”. Some of the key takeaways: A lack of outcomes (accidents) doesn’t mean you’re safe. Additionally, hazard scoring systems and audits have shortcomings as do some data sharing programs for lack of consistency and access. But a different approach that measures data and then conducts a root cause analysis can in fact discover trends before an accident occurs. For CJP, a FOQA system will allow us to see the trends that exist in our operations that can include runway excursion “close calls,” for example, not just those that actually happened. This will allow true root cause and corrective action knowledge to flow to our members before they have an issue. We believe a combination of the goCJP 2020 Virtual Safety Stand Down, Wichita, Kansas

CJP Gold Standard Safety Award recipients at the 2019 Annual Convention Safety Stand Down These two new CJP safety initiatives for 2021 will accompany a number of others already in place. The Safety Committee established SOPs in 2017, and an accompanying Gold Standard Safety award for those who adopt the SOPs and also complete additional accredited training beyond the 61.58 minimum requirements. We also conduct a day-long Safety Stand Down at our annual convention that has been a key driver in increased membership in the Association. We have also produced a number of resources online available to anyone. You

don’t have to be a member to access them, a direction taken by the CJP Safety and Education Foundation to share anything safety related broadly with the flying community. We have created a series of “What Good Looks Like” videos on several safety topics, and we have also conducted a number of safety podcasts, all available free at the CJP web site. You can see and download the content here: citationjetpilots.com/safety. We look forward to reporting back to you on our 2021 initiative results... we think they could be game changers.

INTERNATIONAL NEWS

OH,

CANADA! BELINDA BRYCE - THE MAGNES GROUP

s I write this article from my home office, like many of my fellow Canadians, I am amidst the second lockdown of the year. It’s pretty easy to look back at the last 12 months and come up with obvious themes for 2020: COVID-19—the year of masks, shoulder high fives, and Zoom meetings; the US Election—the year of SNL worthy Presidential debates, nail biting prime time television and the never ending count of votes; and finally the theme most impacting AIA broker members regardless of your geography, undoubtedly the “hard market.”

tious underwriting. And, unlike COVID, there doesn’t seem to be a near end in sight—no vaccine around the corner to make it all go away.

Like the rest of the world, the Canadian market is dealing with reduced capacity, increased rates, limited appetite for new business, and extremely cau-

Total revenues for our nation’s largest airline declined 86% from third quarter of 2019 to 2020. According to our Minister of Transport, Marc Garneau, “the pan-

In the last few days I had the opportunity to ask three different underwriters to crystal-ball the duration of the hard market. Based on the responses I received, ranging from 18 months to five years, it appears the general consensus is essentially unknown. What is known, however, is that it has been an extremely difficult time for many of our Canadian clients.

demic has hit the air sector harder than any other and it is facing a delayed and slow recovery.” COVID has had the same crushing impact on general aviation as well. Canada has long been recognized for our “Great Outdoors.” From remote “fly-in” fishing to unrivaled back country heli-skiing, Canada is a utopia for tourists looking for that once-in-a-lifetime outdoor adventure and relying on air travel to get there. According to Stats Canada, travel from USA and other foreign countries was down 95.3% in September 2020 compared to September 2019. Equally impacted are several charter operators whose businesses have all but been halted due to the closure of the U.S./Canadian border, and the 14-day mandatory quarantine for any Canadian returning from abroad. In some cases these operators are down 50-75% of their normal activity. And while things are picking up for the holiday season, they are cautiously managing the reality of lastminute cancellations. FBO and airport revenues are also way off compared to prior years as they struggle to deal with a significant reduction in traffic and fuel output. International cargo handlers were forced to lay off employees and there’s been a general slowdown of many of the peripheral businesses that serve the aviation community.

On a positive note, despite initial shutdowns in the spring, most of the flying schools across the nation have bounced back to full capacity with the appropriate measures in place to protect their employees and clients from the virus. I applaud my partner underwriters, whom for the most part, really came to the table and supported the schools with some form of temporary relief. As we look forward to 2021, it is reassuring to hear from one underwriter that it’s vitally important for our industry to find the right balance between sustainability of the marketplace and sustainability of our clients’ businesses. Careful consideration needs to be given to a prolonged hard market. What started in 2018 has been further exasperated by COVID. If we continue at this pace for what some are predicting at least another two renewal cycles, it could well result in the customers we rely on for revenue shutting their businesses, or reducing their insurance spend through self-insurance or other risk management methods. Striking the right balance between the need to improve the market performance and the affordability of insurance will be key to a viable future for aviation insurance. In pursuit of this shared goal, we’re working on putting together a Canadian Zoom call for brokers to get first hand feedback from our Canadian underwriters on the current and future state of the market. Watch for an update on this coming soon.

REINSURANCE REPORT

Walter Voigts-Von Forster - MUNICH RE

Reinsurance prices

on the rise

he reinsurance market does not play a very visible role to the holder of an aviation policy. Normally the broker is probably the most recognized name associated with aviation insurance, and those who’ve ever read their insurance policy will know the name of their insurer as well. Only the sophisticated risk manager will probably have an understanding of the role reinsurers play in this market. But sitting in the background, reinsurers do play an important role in making it possible to offer the coverage required by the aviation industry. To illustrate this, let’s review by way of example the airline insurance market. If COVID-19 hadn’t happened, then for underwriting year 2019 this market probably would have collected just below two billion USD of net premium (which is premium less brokerage and tax). Let’s assume that at modestly profitable premium levels this market may generate a profit of 15% after paying for insurers’ costs and attritional plus average large claims, i.e. 300 million remain. Now consider the example of a major air-

line, for which our market offers policies to insure hull values up to 400 million USD and it provides 2 billion USD of liability limit. Clearly the 300 million of profit is not enough to cover a potential total loss under this policy. And in addition, the insurance cover is also available for multiple losses, each and every aircraft. And it’s not the entire market that will pay for this loss, but just half or so of the insurance companies may participate, who each have a much smaller premium base. So either all insurance companies would each need to hold enough money in the bank to cover such a loss (several hundreds of millions of dollars to cover an individual policy, and multiples of that to cover the possibility of several losses). Or they need share that risk with multiple reinsurers, whose business model it is to take on such risks across many classes of business. This is in practice far more cost-effective than holding the vast amounts of capital required to self-fund all possible losses. The typical way of reinsuring a portfolio of airline risks is non-proportional reinsurance, which covers losses ex-

cess of an agreed threshold and gives this cover for up to an annual aggregate limit. Together with airline hull and liability, the reinsurance also covers the involvement of manufacturers and other liability policies in the same event. The prices for such reinsurance covers have in recent years been around 5% rate on line for an entire programme, which describes the ratio between reinsurance premium and the limit placed. In other words, the cover granted for a single event is twenty times the premium.

bit more careful to the extent in which they deploy their capacity these days, nearly all reinsurers are still in the business of aviation reinsurance and do not have their capacity cut back, at least not broadly.

In good years there may be no losses to these reinsurance covers at all, and all the premium (less reinsurance brokerage and cost) remains as profit. And since up to 2018 there have only been a handful losses with higher severity, the results of reinsurers offering such covers has been profitable. Subsequently this market saw a high level of competition and price reductions as a result. Then the two crashes of Boeing 737 Max 8 aircraft in October 2018 and March 2019 happened, and reinsurers will pay the bulk of the expense associated with these two losses. As a consequence, aviation reinsurers will incur loss ratios of several hundred percent for the affected years. In turn, the prices for excess of loss reinsurance has increased significantly over the past year. Across the entire market, prices increased by around 30% in underwriting year 2020 compared to 2019. If prices are increasing this steeply, were these losses beyond the expectation of reinsurers? Yes and no. Yes, because obviously the quite specific circumstances and severity of these losses from Indonesia and Ethiopia were not foreseen. But ultimately the answer is no, because a loss of the magnitude that is currently expected from these events was probably modelled with return periods between 15 and 20 years. Considering that the last event of comparable severity of September 11, 2001, the recent events probably have been within the expectation of reinsurers. So are the price increases due to a collapse in reinsurance capacity? Mostly not. Whilst reinsurers may be a

So if the losses that occurred are generally within expectation and the same reinsurers are in the market now as several years ago, why the instability in pricing? This line of business is characterized, as shown in the graph on the next page, by comparatively little premium to cover very severe, but infrequent, loss scenarios. It is very volatile in its results. In those years with no large loss event there is a high margin of profit, even if this profit is not sustainable over the longer term. And the market dynamics of buying and selling will cause prices to drop if there is a longer period of profit as there has been leading up to the two Boeing events.

Once there is a large loss though, the rationale for writing aviation reinsurance may quickly turn from “it’s small, and we know it’s exposed, but its nicely profitable” to “it has lost us a lot of money, with not that much upside, why do we bother to continue with it?” It’s the answer to this latter question that underwriters need to convincingly provide in order to keep their underwriting pen. In the current situation the protracted soft market has allowed premium levels to fall well below technical prices. A clear must-have for underwriters to be allowed to continue offering their capacity is to reach a premium level again that covers the expected losses plus cost and a return on the required capital. However, if underwriters have been below the required pricing in recent years and now just make it back to technically adequate level, then over a longer period of time the equation doesn’t work. Pricing needs to be above technical pricing levels for some time now to make the business model function across a longer period of time. Otherwise reinsurers would have to be highly opportunistic about when to offer capacity and when to withdraw. But as we saw in the initial

example, offering the product to the primary policyholder can only work in aviation with reinsurance taking on the biggest chunk of the exposed values and limit, and this needs to be consistently available. Understood. But why should a policy holder of a general aviation aircraft be concerned? Why is an insurer affected that had nothing to do in the recent loss events? The fundamental principle of insurance, that the claims of the few are paid by the premium of the many, also applies here. The same reinsurers and insurers who cover general aviation also cover airlines and product liability on the worldwide basis. Losses with return periods over decades at the view of an entire market are plainly impossible to earn back from an individual insured. Likewise a reinsurer can’t earn them back from just a subset of affected insurers, the burden has to be borne –at least to some extent–by the entire market. Shouldn’t the impact of the pandemic on commercial airline flight activity reduce the expectation for losses of reinsurers and offset the need for rate increases to some degree? Yes, it does reduce liability exposure. At the same time

the large ground accumulation of aircraft poses an increased vulnerability to natural perils. But it is fair to say that exposure overall is down. However, this effect is a temporary one in the bigger picture, and the prime objective of reinsurance underwriters is to get the premium pot to a viable size again, in order to stay in the market. The pressure to reduce premium at the front end for operators who are struggling to keep their airlines running is of course pulling in the opposite direction as the need for reinsurers to reinflate the market. If rates need to rise again, can’t we do so in palatable steps? It is happening in steps, and most underwriters would see several more iterations required to reach a viable premium level again. The graph indicates how Munich Re would see how pricing levels for excess of loss programs developed year-on-year relative to 2007. The soft market started in the early 2000s and continued up to, and including, the April 1st 2019 renewals. Undoing such a market dynamic at least par-

tially is a longer process. Even though the increases of 2020 appear quite steep, it’s the very low baseline that the market went down to that makes them necessary. One advantage that aviation reinsurers have is that the fundamentals of the market with high limits and a comparatively low premium base create a need for risk transfer. This requirement to share risk requires that a balance is found between the interests of the highly interlinked companies across insurance buyers, brokers and underwriters, as well as primary policy holders. Finding this balance currently creates more friction than it used to in previous years. But it seems the market hasn’t found a formula for offering a stable product over time; it seemingly requires that up and down movement. Or does it?

CLAIMS REPORT

GROUND HANDLING Gareth Jones - LIABILITY TEAM DIRECTOR - McLarens General Aviation Gareth Jones heads up McLarens Aviation’s Liability team, which handles high value, complex liability claims throughout the world, including airline passenger injury, cargo and airport operator’s liability claims (personal injury, property and aircraft damage) as well as claims relating to ground handling operations. In this piece, Gareth explains the role of the liability and indemnity provisions within the IATA Standard Ground Handling Agreement (SGHA), how the indemnities have changed in the years since its original inception and what the future potentially holds given the competing interests of carriers and ground handling companies.

or as long as aircraft have required servicing at aerodromes and airfields, there has existed a need to define the obligations and accountabilities of the parties involved in the ground handling process. After decades of services being provided under bespoke contracts, members of the International Air Transport Association (IATA) identified the need for a standardized form of contract to ensure consistency and commercial risk certainty between aircraft operators and the companies which serve them. What emerged was the Standard Ground Handling Agreement (SGHA), which today forms a crucial section of the IATA Airport Handling Manual.

The first agreement Following deliberations by the IATA working group established to consider the issue of a standardized contract wording, the first iteration of the SGHA was issued in 1993 and began to be adopted by carriers and handling companies when entering into contracts for ground handling services. While a modern-day agreement covers many aspects of aircraft servicing, this item is concerned with Article 8 of the agreement: LIABILITY AND INDEMNITY. It is of note that Article 8 did not feature in the 1993 IATA SGHA at least, not in its current guise, as shall be discussed in greater detail later in this article.

The primary function of Article 8 is to make clear the legal liability position of the contracting parties with regard to aircraft damage, injury to passengers or employees, damage to property owned by the parties, and damage or loss of baggage and cargo (including mail). The agreement at Sub-Article 8.1 stipulated that the carrier could not make any claim against the handling company and had to indemnify it against any legal liability for claims or suits in respect of: (a) delay, injury or death of persons carried or to be carried by the carrier; (b) injury or death of any employee of the carrier; (c) damage to or delay or loss of baggage, cargo or mail carried or to be carried by the carrier, and (d) damage to or loss of property owned or operated by, or on behalf of, the carrier and any consequential loss or damage. Dependent upon the IATA SGHA wording variant that can be utilized today, this indemnity would only apply if the foregoing arose from negligent operation of ground support equipment or a negligent act or omission of the handling company in the performance of the agreement, unless done with intent to cause damage, death, delay, injury or loss or recklessly and with the knowledge that damage, death, delay, injury or loss would probably result. Although most readers will be able to interpret the meaning of “done with intent,” quite what the drafters of the SGHA intended when inserting the adjective ‘recklessly’ may not be immediately obvious. A detailed examination of reckless in the legal sense is beyond the scope of this article given the complexities involved, and to compound matters further there is some disagreement among scholars as to whether the test should be objective or subjective. For the purpose of this article, however, one definition of recklessness can be given as: “the act of a person who knew, or ought to have known, that their action was likely to cause harm to another but proceeded regardless of the potential consequences.” This behaviour is distinguishable from straightforward negligence, as a negligent person lacks the foresight to realize that their actions may cause someone else harm.

To further complicate matters, the reckless term and its interpretation will inevitably differ from jurisdiction to jurisdiction.

A shifting landscape IATA conducts a review of the SGHA framework generally at intervals of five years, when a new working group is established to analyze how effective the agreement has been during this period and also consider submissions from the contracting parties who have been using it in their dealings with one another. It was recognized at the time of the first review in 1998 that the ‘hold harmless’ nature of the 1993 wording indemnity was unfair to carriers, who had historically relied on reciprocal agreements with each other due to the fact most handling was performed by one carrier for another. However, following the proliferation of handling companies offering more competitive rates this was no longer applicable. To address this apparent inequity, it was decided to insert a new indemnity clause in to the 1998 IATA SGHA and lo, Article 8 was born! In simplified terms, under the 1998 Agreement, Article 8 and specifically, Sub-Article 8.5 stipulated that the handling company must indemnify the carrier for any physical loss of or damage to the carrier’s aircraft (consequential losses are specifically excluded), subject to an upper limit of the carrier’s all risks insurance deductible (not exceeding US$1.5m) and a lower de minimus limit of US$3,000, in the event that said damage was caused by negligent operation of ground support equipment (GSE). As can be appreciated Sub-Article 8.5 heralded a monumental shift in the risk landscape of ground handling and created an exposure to liability for handling companies where none had existed previously. Now these companies would no longer be able to rely on the protection from claims they once enjoyed, and a new culture of responsibility, accountability, and best practice would need to be assumed in order to satisfy the aviation

insurance industry that such businesses were still an insurable risk. Of course, the corollary of imposing more onerous terms on handling companies was an increase in their charges to meet rising insurance premium. But carriers were now able to recover the cost of repairs from handling companies without needing to demonstrate intent or recklessness, and this profound change in the agreement was viewed positively by carriers who until then had felt the wording of the SGHA was unfairly weighted against them.

Widening the scope The next review in 2004 (a year later than scheduled) saw a subtle yet important change to the wording of Sub-Article 8.5, billed as a response to the narrow circumstances in which liability for damage to aircraft might arise, namely the negligent operation of GSE. This clause was viewed as too favorable to ground handling companies because only damage caused by the negligence of an employee in isolation would be sufficient to trigger the indemnity. For that reason, the indemnity was widened to remove the operation of GSE as the trigger; the handling company now faced liability for negligent acts or omissions when providing their services. This represented yet another swing of the liability “pendulum” towards

carriers, and the shift continued with the publishing of the 2008 revision, when Sub-Article 8.6 was introduced carrying the stipulation that the handling company must indemnify the carrier against direct loss of or damage to cargo (excluding mail) in accordance with Montreal Convention, subject again to upper and lower limits of US$1m and US$500 and at all times never exceeding the liability of the carrier. The most recent edition of the SGHA in 2013 has seen only a slight change to update the limits of liability under Sub-Article 8.6 to correspond with the latest changes to the Montreal Convention in 2009. The 2018 and most current SGHA revision also made only slight changes to the wording of its predecessor incorporating greater contract certainty relative to cargo aspects.

What about the future? The gradual transferral of risk on to the handling company between the 1993 and 2018 agreements is plainly evident. While the shift in risk since the original 1993 SGHA may have been an unwelcome one for ground handling companies, the indemnity position has largely been settled since the introduction of Sub-Article 8.5 in 1998, save for some minor modifications as described above. Nevertheless, from the carrier’s perspective there

is still one important area that is in need of reform: the prevention of consequential loss recovery except in cases of intentional or reckless acts on the part of the handling company. In financial terms, such losses can often far exceed the level of repairs, particularly if an aircraft has suffered damage so that it remains grounded and is out of service for any significant length of time.

charges would no doubt rise in response to the widening of the indemnity provision, and this could end up being passed by carriers to passengers in the form of higher fares which, at a time of fierce competition in the market, may ultimately impact on carriers’ profits at a time when carriers face increasing pressures to remain competitive.

The IATA Airport Handling Manual does give guidance on how carriers and handling companies might wish to treat losses arising consequent to physical damage to aircraft, but it does not currently form part of the SGHA unless specific provision is made for it to be included within the contract, and this gives rise to disputes over what can and cannot be recovered under Sub-Article 8.5. The general feeling is one that carriers will lobby the next IATA working group (due to be convened in 2023) to consider whether it is still appropriate to preclude them from recovering consequential losses in the current climate, and question whether the guidance from IATA should be incorporated into the SGHA wording to give greater clarity over what losses fall within the indemnity provided for by Sub-Article 8.5. Certainly the first of these points will most likely be resisted by the handling companies given the commercial implications, although once again it is worth noting that

McLarens Aviation Liability Team continually monitor developments and trends in this arena for the benefit of the insurer and direct clients alike.

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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 inhouse 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.

ATTORNEYS REPORT

Robert J. Williams - SCHNADER HARRISON SEGAL & LEWIS LLP

amicus curiae

n its continuing efforts to provide value to members, serve the aviation insurance industry, and contribute to the integrity of our civil justice system, the Aviation Insurance Association has filed amicus curiae (“friend of the court”) briefs in several important appeals in various state supreme courts. An amicus brief is filed by a non-party that has particular or specialized industry experience and insight into the issues that are pending before the court. It is a means to provide the court with a broader perspective of how its rulings and decisions could impact a larger group or industry beyond the litigants themselves. The AIA is well suited for this role. Our members include some of the world’s brightest insurance professionals and our collective knowledge of aviation insurance is rivaled by few to none. We are at the forefront of both industry and legal developments. To date, the AIA’s amici submissions include: •

•

In re Deepwater Horizon, No. 13-0670 (Tex. Feb. 13, 2015) (construction of indemnity and additional insured provisions) U.S. Specialty Insurance Company v. Estate of Ward, et al., No. 18-0373 (Mont. Mar. 26, 2019) (stacking of aviation insurance policy liability coverages) Starr Indemnity & Liability Company v. Kenyon International Emergency Services Inc., No. 19-0005 (Tex. Apr. 5, 2019) (exclusion of coverage for Aviation Disaster Family Assistance Act benefits)

Although it can be a noble and worthy endeavor in many cases, the decision to file an amicus brief necessarily is subject to several important considerations. The briefs must comply with complicated court rules that vary from jurisdiction to jurisdiction and can take well over a hundred hours to complete. The AIA’s ability to file

an amicus brief is wholly dependent upon member law firms’ willingness to donate their attorneys’ time, production expenses, and court fees. Additionally, dilution of the AIA’s “voice” can occur if we do not limit our submissions to the most important issues affecting the majority of our members. To be fair and provide clarity and transparency to our members, the AIA Board has adopted the following standards and criteria for evaluating requests for amicus briefs: The President, with the advice and consent of the Executive Committee and in consideration of the recommendations of the Attorneys’ Division is the approving authority for any amicus brief request or related matters, applying the following criteria: •

•

• •

Breadth: any amicus brief submitted by the AIA should support the interests of a majority of its members. Unanimity: any amicus brief submitted by the AIA must not favor the interests of one member or type of member over another. There cannot be any conflict of interest between or among AIA members with respect to a position asserted by the AIA in an amicus brief. Eligibility: requests for amici briefs should be entertained only from AIA Corporate Partners. Subject Matter: the subject of any litigation in which the AIA submits an amicus brief should relate directly to insurance, and not merely indirectly or on an attenuated basis, or aviation in general.

It is our privilege to serve you and we hope you find these criteria to be helpful. As always, please do not hesitate to contact me if you have any questions or there is anything you would like to discuss.

PAUL HERBERS - COOLING AND HERBERS

WHERE ARE THEY NOW?

David Binks D

avid Binks began his career in 1964. His mother guided him up to the City (London) at a time when the prospects of a lifelong job were promising. He considered making a go in the shipping industry, but then wisely opted for insurance.

After graduating from the post room and learning the insurance business, he became an Aerospace broker with J H Minet and Company. Over his 56-year career he served in nine different Broking Houses, as a major Airline and Aerospace broker dealing predominately with U.S. clients. Only one of those houses remains today, reflecting the continual changes in the business over those years. As a young footballer at age 29, David and his teammates at Stewart Wrightson won the Lloyd’s Brokers Cup competition played at the Charlton Athletic F. C. Stadium against Sedgewicks. Can you pick him out of this photo?

joined a group that ran across the Golden Gate Bridge, although he might have missed a few of the official programs at the conference. He’s happy to note that from San Francisco on, he did not miss a single AIA conference until his retirement. David was an avid and respected member of the Brits golf team at the annual AIA golf tournaments, and he saw his share of victories over the Yanks. He remembers fondly many fine individuals who became business colleagues and very good friends of his.

David’s contributions to the AIA over the years have been many and varied. Not only did he David still had a strong set of legs just a few serve on the Board, he became President of the years later, when he attended his first AIA AIA for the year leading up to the 2002 ConConference in San Francisco in 1986. There he ference. A few years later, David received the

AIA’s highest honor in 2011, when he was recognized with the Pinnacle Award. Only a few years after that, he was inducted into the AIA Eagle Society.

Past President David Sales), when he gained his Freedom of the City plaque on April 24th, 2015.

David received a special honor from a very exclusive club in the City of London (for which he is particularly grateful to AIA

Since retiring in 2015, David has thrown himself into grandkids, golf and line dancing. He and Brenda have moved to a retirement lodge on Mersea Island in a gated community. For all you Yanks reading this, that’s in Essex near Colchester, and a beautiful place it is. David and Brenda are living the good life with all their retired friends, walking into the village for their daily needs and for exercise. David has passed his athletic genes to his descendants. Among his grandchildren are two footballers, both of whom have been scouted by professional clubs. His elder grandson is a triathlete aspiring to compete for Olympic gold, and we all wish him the very best in his pursuits. His equally talented granddaughter has aspirations to become an actor and singer, and she has been performing online concerts during the pandemic. David last joined us for the 2017 conference in Austin, Texas, and while he hopes to get back again to see us in the future, he still misses all his AIA friends.

NICOLE STOUT - Director AT LARGE

Women’s Initiative Report WINTER 2021

hile we do not know what 2021 has in store for us, most of are probably ready and excited to see what’s next. We have all lamented at what a challenge 2020 has been, professionally, mentally, socially and personally. We will look back and realize that we have grown and gained a deeper understanding of what is important to us. There are a lot of unknowns for the coming year, but we are trying to plan and navigate the best way that we can to make AIA a valuable resource for education, networking and growth in the aviation insurance industry.

We recently sent out a survey to the women’s segment of AIA to plan for the future. Thank you to all of you who responded to our Women’s Initiative survey. As AIA evolves, we are all striving to make meaningful personal and professional connections. Understanding what is important to you helps us design programming and opportunities to enhance your experience at the conferences and throughout the year. Almost all of the respondents were interested in a Women’s Initiative Breakfast or other activity at the Annual Conference. Networking and specific programming were at the top of the list,

while a good number of respondents were interested in mentoring and speaking opportunities. There was concern expressed in the fact that the last Women’s Initiative Breakfast conflicted with the golf and skeet-shooting. I do not believe that our Women’s Initiative members should have to forego the other events to attend our event. We will do our best to find an alternative time for us to have our event that does not conflict with other events. It will be a difficult task because the schedule is fairly tight for every day of the Conference. The Annual Conference in 2021 is likely going to look different than past conferences. We are in the planning stages and the situation is evolving. Regardless of the format, we will have a special event for the Women’s Initiative in some form. Almost all of you were interested in articles highlighting women members in AIA. Future issues of The Binder we will include articles on women in

aviation insurance that have helped pave the way for where we are today. Many of you were interested in writing articles for The Binder. I will be reaching out to you for ideas and moving forward with this special addition to The Binder. There was also strong interest in a mentorship program. A current theme from responses from the survey is that the Women’s Initiative can help grow membership in the AIA and the aviation insurance industry. Leadership and connection draws people in and gets them engaged. My personal goal is to make sure that our members are excited about the AIA and its opportunities, and look forward to coming to the events and participating. The survey results reinforced to me that we have a core group of members that are engaged and ready to lead. I look forward to seeing you all soon! Nicole

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

VICE PRESIDENT GREG STERLING AIG AEROSPACE greg.sterling@aig.com

SECRETARY CHRISTOPHER MORIN Murray, Morin & Herman cmorin@mmhlaw.com

TREASURER LUKE UITHOVEN Kimmel Aviation Insurance Agency, Inc luke@kimmelinsurance.com

DIRECTOR, AGENT/BROKER DIVISION DAVID HAMPSON Schrager Hampson Aviation Insurance Agency LLC david@planeinsurance.com

DIRECTOR, ATTORNEY DIVISION ROBERT J. WILLIAMS Schnader Harrison Segal & Lewis LLP rwilliams@schnader.com

DIRECTOR-ELECT, ATTORNEY DIVISION MICHAEL MCGRORY SmithAmundsen LLC MMcGrory@salawus.com

DIRECTOR, CLAIMS DIVISION ERIC WEIDNER McLarens General Aviation eric.weidner@mclarens.com

DIRECTOR OF REINSURANCE DIVISION WALTER VOIGTS-VON FORSTER Munich Re WVoigts-vonForster@munichre.com

DIRECTOR, UNDERWRITER DIVISION JEFFREY TIPPINS Starr Aviation jeffrey.tippins@starrcompanies.com

DIRECTOR-ELECT, UNDERWRITER DIVISION WES COLLIER Old Republic Aerospace wcollier@oraero.com

DIRECTOR, INTERNATIONAL DIVISION IAN WRIGGLESWORTH Guy Carpenter ian.wrigglesworth@guycarp.com

DIRECTOR-AT-LARGE NICOLE WOLFE STOUT Strawinski & Stout, P.C. nws@strawlaw.com

DIRECTOR-AT-LARGE CHRISTOPHER ARNOLD Sutton James, Inc. carnold@suttonjames.com

INTERNATIONAL DIRECTOR-AT-LARGE BELINDA BRYCE The Magnes Group bbryce@magnesgroup.com

AIA EXECUTIVE DIRECTOR MARY GRATZER Aviation Insurance Association mary.gratzer@aiaweb.org

AIA BOARD COUNSEL RAY MARIANI Leader, Berkon, Colao and Silverstein LLP rmariani@leaderberkon.com