The Binder; Spring 2016 by Aviation Insurance Association

VOL. 41 NO. 1 - Spring 2016

THE BINDER THE CASE FOR NON-OWNED AIRCRAFT LIABILITY INSURANCE COVERAGE MANAGING GROUND ACCUMULATION RISKS POST TRIPOLI!

aviation history: Aviation Insurance: Reaching Maturity

Unmanned Aircraft Systems (UAS): “Adjusting to change”

AIAWEB.ORG

IN THIS ISSUE 02

President’s message

Agent/broker’s division report INCORPORATING CHANGE IN AN UNCHANGING INDUSTRY

Attorney’s division report I

attorney’s division report II SHOULD AN AIRCRAFT BE OWNED INDIVIDUALLY OR BY A CORPORATION?

THE CASE FOR NON-OWNED AIRCRAFT LIABILITY INSURANCE COVERAGE

AVIATION INSURANCE: REACHING MATURITY

2016 Renter Pilot Disclosure & Coverage Requirements

2016 aia corporate members

Claims division

Aviation history

Underwriter’s division report

Industry news MANAGING GROUND ACCUMULATION RISKS POST TRIPOLI!

Industry News UNMANNED AIRCRAFT SYSTEMS (UAS) “ADJUSTING TO CHANGE”

aia board of directors

crossword

Editor Nigel Wright

XL Catlin nigel.wright@xlcatlin.com

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

david sales - CGNMB LLP

recently attended an enthralling panel discussion in London. The theme of the panel discussion was the need for innovation. It included four well-respected and distinguished panelists from different parts of the market. All of the panelists had something meaningful to contribute to the discussion and their views were often at odds with each other, particularly the broker and underwriter with opposing opinions. I suppose that I should not have been surprised at that!! My key takeaway from the session was that we are in a sector of the insurance industry where true innovation is the most difficult. As the panelists brought to light, the core coverage given to an aircraft operator has not changed for around 40 years. The main innovation over the years has been concerned with making the transaction itself more efficient rather than providing coverage innovations which could potentially benefit the ultimate client. My enjoyment of the panel discussion was interrupted by a phone call from a client informing me that my renewal quote from the expiring insurers had been undercut considerably by a competing broker and did I want the opportunity of going back to my markets to see if I could secure a better deal? Absolutely, I said and I went back, restructured the program a bit and came up with some very competitive terms which I thought confidently would prove to be significantly less than the competition. I sat back smugly and waited for the order. Instead, I was informed that in anticipation of my remarketing efforts, the competition had further reduced their prices and my markets were, again more expensive. I was given one last chance to get my markets to sharpen their pencils and as it turned out in the end, the competition was still slightly cheaper but there was not too much in it. Fortunately, the client saw the value in continuity and didnâ&#x20AC;&#x2122;t want to lose the relationships that had been nurtured with underwriters over the years and we secured the order. The client did, however, confide in me that he found the whole process alarming and didnâ&#x20AC;&#x2122;t feel that it was a positive reflection of the professional standing and credibility of the aviation insurance market. He said he expected such behaviour when shopping around for auto-insurance, however he perceived the aviation insurance market to be a little more sophisticated.

Although he hadn’t solicited the competing quote, he felt that he couldn’t really complain because the premium savings meant he could buy a new Ferrari! I realise that this is not a unique incident and that a great many brokers/agents and underwriters face this type of intense competition on a near daily basis. Nevertheless, it did sadden me to have the industry that I am part of viewed in such a negative light. It does concern me that if our clients are purely price driven, then, if we are not careful, more of what we do today could soon be handled remotely and automatically on an online platform. Part of me likes to believe that there are still clients who really do appreciate the personal and professional approach that adds value to the placement process. It seems obvious that the easiest way for any of us to add value is by proffering a sound technical expertise. Education is a key way of achieving this. The theme during my Presidency is “Educating for the Future” and I am extremely proud of what the Aviation Insurance Association has to offer in professional development opportunities. We have the new and enhanced course of “Aviation Insurance, Core Principles and Concepts” which can lead to the highly respected CAIP designation. In addition, at our annual conference we will have our usual CIE sessions on Sunday with an excellent program of speakers. This can provide up to eight hours of credit for agent/brokers and adjusters. Some of these sessions will be approved for continuing legal education credit. We are seeking approval for 10-12 credits, depending on the state, including one hour of legal ethics. The potential benefits to the international community should not be underestimated either. Many of us are subject to certain Chartered Insurance Institute (CII) or regulatory requirements to attain Continued Professional Development (CPD) hours in a similar way and the AIA Educational sessions can be an invaluable source of the structured learning element that is required.

Of course, the conference is not just about Education. It has become the place to be for all those working in the aviation insurance industry. This is the one time per year when all facets of the industry are together at once and the networking opportunities are immense. It is your chance to renew old acquaintances, build new relationships, and grow your business. I am very pleased to say that everything is on track for a great conference in Miami. Early registration numbers are particularly strong and I would like to thank all of those sponsors who have already pledged their generous support. We have a superb program of speakers lined up for Monday, including our keynote speakers Mike McGavick, Chief Executive Officer of XL Group PLC, Michael P. Huerta, Administrator of the Federal Aviation Administration, and Roger Woolsey, the charismatic Chief Executive Officer of Houston-based Million Air. There is also a lot of excited anticipation about our lunchtime speaker, Mike Durant, Chief Warrant Officer Four US Army (Retired). Mike was famously the pilot of the Black Hawk helicopter Super Six Four that was fired upon and subsequently brought down during a combat operation in Mogadishu, Somalia. His dramatic story was recounted in Mark Bowden’s best-selling book Black Hawk Down and Ridley Scott’s Academy Award-winning movie of the same name. To conclude Monday, we have a fabulous evening party planned on-board the spectacular yacht, Biscayne Lady. Once aboard, we will enjoy an evening of cocktails, fine food and dancing, all whilst admiring the scenic vistas along the Miami coastline. I look forward to seeing as many of you as possible in Miami! And don’t forget, all domestic beers at the hotel bar are USD $5 and all imported beers are USD $6 for all those wearing an AIA Conference Badge!!

We will see you in Miami!

Incorporating Change in an Unchanging Industry

LUKE UITHOVEN - Kimmel Aviation Insurance Agency, Inc

n some fashion, it’s reasonable to say that insurance has been around as long as some early human societies. Throughout those many years, the basic principle of insurance has not changed. You give up something of value in order to mitigate the risk of losing something of higher value. Whether you were insuring land in the 1400’s, insuring a ship for trade purposes 2000 years ago, or insuring your King Air right now, you would buy insurance in order to pass the risk on to someone else. So, if this idea has been around seemingly forever, how do we, as an industry, stay relevant in a world that changes every second of every day? How do we sell a product that is so antiquated to a generation whose attention span can hardly seem to hold for the next post or tweet? This is a big challenge for us as Agents and Brokers. The client we have had for 20 years is now looking to retire and pass on the business to a family member, or to a recent college graduate who is new to the industry. We may have a relationship with our older client but don’t really know or understand the younger new owner at all. How do we relate to the new

generation of tech savvy owners? Do we try our dated tactics of trade shows, dinners, and cheap giveaways? Or, should we look to find new ways to connect with the new owner? Perhaps we should increase client visits, offer more useful or practical gifts, or even take the approach of a larger offer, such as incentive trips, something a younger generation may value more? This new generation of clients that are becoming business owners in the aviation industry are often outside of our comfort zones. They are consumed with Facebook, Twitter, and Netflix. They expect all of the information to be at their fingertips at any given second of the day. They don’t even know how to use a typewriter or fax machine (In fairness, I had never typed on a typewriter in my life before starting at Kimmel 8 years ago and I am currently 31 years old). They don’t want a paper copy of their insurance policy, they want it on email or an app where they can look through it if needed but most likely won’t get past the first page unless they have a claim. They don’t care about us calling them on the phone, they would rather get a text message confirming coverage. We can stress the impor-

Technology is changing the way that we see and connect to our current and future customers. It can also help us bring our age old “product” into the forefront of relevance with a new generation of clients. tance of insuring their aircraft to them all day long, but unless we appeal to them on their level, in their realm of interest, we will fall behind the curve and get left in the dust. The challenge for us as agents and brokers is to be able to stay current in an industry that is as old as time. For some agencies, the answer is as simple as increasing their social media presence, while others are full steam ahead into the UAV realm. There are also some agencies fully invested in working

agent/broker division report

with young pilots transitioning into seats and working hand in hand with them on business plans to purchase the flight school or work the corporate ladder in the flight department. This is a great way to create foundations with young aviation professionals as they start their career. There are no clear cut answers and we will all have different opinions. One thing is certain, the world we live in is changing every second of every day and we have to change and grow with it if we want to stay relevant. Technology is changing the way that we see and connect to our current and future customers. It can also help us bring our age old “product” into the forefront of relevance with a new generation of clients. A wise man once said, “If you ain’t first, you’re last.” I say that in jest, but there is some definite truth to it. We have to be ready and willing to embrace the changing world around us or we will surely be passed over and left for obsolete.

ATTORNEY’S DIVISION REPORT

Deborah elsasser - Clyde & Co US LLP

e are looking forward to the Annual Conference in Miami April 30 – May 3, 2016. This year we again are offering CLE credit for many of the CIE sessions to be held on Sunday, as well as for the Attorneys/Claims Division Session on Monday afternoon and the Attorneys’ CLE Session on Tuesday morning. To receive CLE credit you must pay the $100 “Add-on” fee delineated on the registration form. If you have any questions regarding the CLE program or credits, please contact me at deborah.elsasser@clydeco.us or Mandie Bannwarth (mandie@aiaweb.org). This year is an election year for the Attorneys’ Division. If you are interested in running for Attorneys’ Division Director-Elect, please be sure to contact Mandie Bannwarth (mandie@aiaweb.org) for the application form. The election will take place at the Monday afternoon division session and those interested in running will be asked to say a few words at the session prior to the vote. Since last February, we have followed the Pilots’ Bill of Rights 2 legislation through Congress. Late last year, the Senate passed its version of the bill (S.571), and referred it to the House Committee on Transportation and Infrastructure for its consideration. The version that the Senate passed was revised from the original version that we reported on last year but the principal goals of the bill - to amend the Pilot’s Bill of Rights to facilitate appeals and to revise the third class medical certification regulations, remain intact with some additional requirements relating to certain medical conditions. We will continue to monitor the bill’s progress through the House of Representatives and will provide a full summary if finally passed and signed into law. We look forward to seeing you all in Miami!

attorney’s division report

SHOULD AN AIRCRAFT BE OWNED INDIVIDUALLY OR BY A CORPORATION?

Jon morse - the morse law group

SCENARIO: TWO IDENTICAL AIRPLANES FIRST JOINTLY OWNED BY TWO INDIVIDUALS—A AND B SECOND OWNED BY A CORPORATION OWNED BY X AND Y EACH IS INSURED FOR $1 MILLION LIABILITY, SUB LIMIT OF $100K PER PASSENGER BOTH AIRPLANES DEPART CALIFORNIA HEADED FOR ST. PAUL, MINNESOTA FIRST PLANE IS PILOTED BY A, CARRYING HIS WIFE AS PASSENGER SECOND PLANE IS PILOTED BY X, CARRYING HIS WIFE AS A PASSENGER WHILE ENROUTE, BOTH PLANES ARE FLYING IN FORMATION AND COLLIDE OVER MINNESOTA. BOTH PASSENGERS ARE KILLED, EACH PLANE HITS AND DESTROYS A $2.5 MILLION HOUSE.

NOW WHAT? POTENTIAL CLAIMS: WIDOW OF A, WIDOW OF X, AND OWNER OF HOUSE

ESTATES OF A AND X HAVE SUBSTANTIAL UNINSURED LIABILITY, BUT WHAT ABOUT THE POTENTIAL EXPOSURE OF B AND Y?

Minnesota Statute MS §360.0216 provides:

Minnesota statute MS §360.012(4) provides:

“When an aircraft is operated within the airspace above this state or upon the ground surface or waters of this state by a person other than the owner, with the consent of the owner, expressed or implied, the operator shall in case of accident be deemed the agent of the owner of the aircraft in its operation.”

“The owner of every aircraft which is Operated over the lands or waters of this state is absolutely liable for injury or damage to persons or property on the land or water beneath, caused by the ascent, descent, or flight of the aircraft, or the dropping or falling of any object therefrom * * *.” (Emphasis added.)

SUIT FILED AGAINST ESTATE OF A AND ESTATE OF X --THEY WILL BE DEFENDED, BUT THEY ARE PERSONALLY ON THE HOOK FOR THE EXCESS SUIT FILED AGAINST CORPORATION AS AIRCRAFT OWNER—CORPORATION WILL PROTECT Y ABSENT FURTHER FACTS

BUT THERE ARE SEVERAL WAYS TO DEFEAT THE CORPORATE PROTECTION: • • •

UNDER CAPITALIZATION FAILURE TO FOLLOW CORPORATE PROCEDURES FAILURE TO MAINTAIN SEPARATE STATUS—NO BANK ACCOUNT, ETC.

DISADVANTAGES OF CORPORATE OWNERSHIP: • • • • •

ADDITIONAL TAX EXPENSES—AT LEAST $800 PER YEAR IN CALIFORNIA ACCOUNTING—CORPORATE RECORDS AND TAX FILINGS FOR COMPANY PLANE—POSSIBILITY OF HAVING IT CONSIDERED A CHARTER OPERATION PAYMENT OF SHARED EXPENSES—POTENTIAL FOR INSURANCE POLICY VIOLATION HULL CLAIM—MAY BE DIFFICULT TO CASH THE CHECK UNLESS THERE IS A BANK ACCOUNT

NOW ASSUME THAT B AND Y ARE ALSO SUED INDIVIDUALLY ON THE GROUNDS THAT IT WAS KNOWN THAT A AND X HAD A DANGEROUS PROCLIVITY TO FLY TOO CLOSE IN FORMATION. B WILL GET A DEFENSE AND INDEMNITY FROM HIS INSURER. HE IS AN INSURED. Y MAY NOT GET A DEFENSE OR INDEMNITY FROM THE CORPORATION’S INSURER UNLESS SPECIFICALLY ENDORSED.

SUGGESTED ACTIONS: • • •

GET SUFFICIENT INSURANCE MAKE AN INFORMED DECISION WHETHER CORPORATE OWNERSHIP IS WORTH THE TROUBLE AND EXPENSE IF CORPORATELY OWNED, MAKE SURE EACH OWNER IS SPECIFICALLY NAMED AS AN ADDITIONAL INSURED FOR HIS OR HER OWN NEGLIGENCE

attorney’s division report II

THE CASE FOR NON-OWNED AIRCRAFT LIABILITY INSURANCE COVERAGE

Gregg A. Pike, ESQ. - Starr Adjustment Services

o pilot worth their salt would consider taking off without conducting a thorough pre-flight of the aircraft or without knowing the weather conditions along their intended route. They know their safety and that of their passengers depends on taking the time prior to the flight to be adequately prepared for that flight. Yet a surprising number of good pilots who are renting or operating a non-owned aircraft often are not prepared, or do not understand, their potential liability and financial exposure in the event of an incident that damages the aircraft, results in bodily injury to passengers/non-passengers or for property damage. They also often fail to obtain, or verify, that they have the necessary insurance coverage to protect themselves from this exposure. The failure to prepare in advance for the legal and financial consequences of an aircraft incident or accident is particularly evident among non-owner pilots. With over 593,000 active certified pilots (according to 2014 data from the FAA) and only 200,000 active general aircraft (U.S DOT statistics – 2013) it is obvious that a great many, if not most, pilots do not own the aircraft they fly. Yet according to my underwriting sources, it is estimated that less than 10% of

non-owner pilots purchase non-owned insurance coverage. Why would individuals who otherwise are intelligent and cautious fail to take this precaution? Having been involved in managing and adjusting aviation insurance claims for over 30 years, I am convinced that most non-owner pilots do not knowingly fly aircraft without insurance. Too often they assume that the owner’s coverage or the FBO’s coverage will protect them. Only after an accident do they learn, to their surprise, that their assumption is incorrect. That can be a costly mistake as the bills can add up quickly. The aircraft owner and/or FBO may look to the non-owner pilot to pay to repair or replace the aircraft. It is also not unusual to see claims made for lost rental income while the plane was down for repairs and for depreciation of the aircraft’s value due to its damage history. The insurance carrier for the owner may also pursue subrogation against the non-owner pilot for reimbursement of any money the insurer pays to their insured. Passengers or other persons injured may seek compensation for their injuries as well as persons who had property damaged. If the renter is unlucky enough to be sued, even if they were not at fault for the accident, legal costs alone

A nonowner aircraft liability policy is an easy, inexpensive means of dealing with the unknown insurance hazards confronting the nonowner pilot.

can be significant. For a pilot borrowing an airplane the only way to determine if coverage is provided by the owner’s policy is to read the policy. Inquiring pilots would need to review both the pilot qualifications section and the definition of insured person in the policy to determine whether they might be covered. They would also have to trust the owner’s word, or contact the insurance company directly, to verify coverage was in force and had not been cancelled for some reason (such as a failure to pay the premium). Needless to say this exercise is rarely undertaken. For pilots renting aircraft, the task of determining coverage is even more involved. Most don’t know that only a small number of states (two at last check) require commercial aviation operations provide liability coverage to renter pilots. Additionally, only twelve states require that renter pilots receive written notice by the operator advising them of the nature and extent of any liability insurance provided to them (please see chart on page 11). Reviewing the FBO’s policy is generally impractical and the rental agreement, if one exists, generally will not shed complete information on renter pilot coverage. My experience has been that many FBO’s do not themselves understand or realize that their insurance coverage does not extend to renter pilots. While all major insurers offer such coverage as an option, FBO’s often do not purchase it due to the cost and the lack of a legal requirement. Coverage under the FBO’s policy for renters may also dilute the limits available to the FBO as most often coverage for a rental pilot is included within and not in addition to the limits available to the FBO. A nonowner aircraft liability policy is an easy, inexpensive means of dealing with the unknown insurance hazards confronting the nonowner pilot. For about the cost of an hour or two of dual instruction, a pilot can purchase a year’s worth of basic liability protection, and basic coverage usually includes payment of unlimited legal defense costs if a pilot is sued over a covered loss. For modest additional amounts, coverage to protect against damage to the rented or borrowed aircraft is available, as are higher limits of liability coverage. Purchasing the aircraft physical damage coverage is particularly useful in covering deductibles and claims for loss of use and loss of value, which are typically not covered under the aircraft policy.

Having such aircraft physical damage coverage is also necessary if a legal defense is needed to defend against claims that involve only aircraft physical damage. I have seen time and time again the value of non-owned aircraft liability insurance. That advice is true even if the coverage is provided by the aircraft owner or commercial operator. It provides the peace of mind of not having to rely on someone else’s coverage, provides an additional layer of protection if those limits prove to be insufficient and further insulates the non-owner’s own assets. Most, if not all, of the major aviation insurers have a nonowned aircraft policy product to provide this vital protection to non-owner pilots.

About the Author Gregg Pike is currently an Assistant VP with Starr Adjustment Services in Atlanta, GA. He has been in the aviation claims industry since 1981 and has previously worked as a claims executive with Avemco Insurance Company, Loss Management Services, Charles Taylor Adjusting, GAB Robins Aviation and Aviation Light Services. He is and attorney and licensed to practice law in the District of Columbia and Virginia and holds adjuster licenses in numerous states.

claims division report

Renter Pilot Disclosure & Coverage Requirements | 2016 State

Renters Disclosure Required?/Citation

Specific Form Required?/Citation

Renter Coverage Provided by Owner Required?/Citation

Additional Information

Per A.R.S. §28-8273 the pilot is responsible for damage caused by his/her negligence, either while controlling the a/c or while instructing. Failure to provide notice may result in fines up to $1,000.

CALIFORNIA

Yes—must substantially Yes/Cal Pub Utilities Code conform to wording in §24362 §24362

§24362 requires that the owner provided either written certification of coverage or for the operator, or a written statement that no coverage exists for the operator. Cal Pub Util Code §5503 requires commercial operator to procure liability coverage for all operators/renters. But see also National Insurance Underwriters v. Carter (1976), in which the CA Supreme Court held that “…no public policy is disclosed requiring aircraft owners to provide coverage for all permissive users who may operate the aircraft.” However, the courts also noted that the insureds “…could not have expected plaintiff to afford coverage without regard to the identity and qualifications of those person entrusted with flying the aircraft.”

§5506 requires filing of a certificate of insurance, surety bond, or evidence of self-insurance with the Public Utilities Commission.

DELAWARE

Yes/Del.C. §191

No, but must be in writing

The student or renter must sign form.

INDIANA

Yes/Ind. Code Ann. §821-3-19.5

Yes—as shown in §8-213-19.5

Failure to provide notice is a Class A infraction. Renter Pilot Disclosure & Coverage Requirements

MICHIGAN

Yes/MCL §259.206

No, but must be in writing

Per §259.206, if lessor does not properly disclose, renter may sue for damages

MINNESOTA

Yes/Minn. Stat. §360.93

No, but must include extent and limits of liability

No, but anyone causing the operation of the aircraft (owner, renter, etc.) is Failure to provide notice is a responsible for determining that the required limits are in place misdemeanor.

NEBRASKA

Yes/Nebraska Admin. Code Title 17, Ch. 9 §001.02

No, but §001.02 lists items that must be disclosed

NEW YORK

Yes—2006 NY Code—Aircraft Article 14—§251-A

Yes, must substantially conform to wording in §251

Failure to provide notice may result in fines up to $1,000.

OHIO

Yes/ORC Ann. 4561.25

Yes, must substantially conform to wording in §4561.25

Failure to provide notice may result in fines up to $1,000.

OKLAHOMA

Yes/ Okl. St. §3-205

Yes, must substantially conform to wording in §205

PENNSYLVANIA

Yes/74 Pa.C.S. §5503(e)

No, but must include extent and liability and hull limits.

SOUTH CAROLINA

N/A

VIRGINIA

N/A

Yes/Va. Code Ann. §38.2-2204

WISCONSIN

Yes/Wis. Stat. §114.40

Yes, must substantially conform to wording in §114.40

ARIZONA

Yes/A.R.S §28-8275

No, but must be in writing

Failure to provide notice is a misdemeanor with fines up to $50. Failure to provide notice may result in fines up to $1,000.

Failure to provide notice may result in fines up to $1,000.

underwriter’s division report

ernest de spain - W. Brown & associates

he basis of an insurance policy is a legal contract between the insurance company (Insurer) and the person(s), or business being insured (the Insured). The policy provides the understanding and agreement and responsibilities in the event of a loss. Upon binding an insurance contract, the Insurer and the Insured are bound by the Insuring Agreements. Most companies use policy forms and endorsements that have been filed and approved in each state. From one company to another, the forms do have differences but are similar in nature. Most of the forms provide consistency of coverage, terms, and conditions and exclusions between Insureds. Generally there are very few “fill in the blanks” or manuscript amendments made to these policy forms. The one exception to the standard policy forms is the aircraft policy form. The Pilot Clause allows the underwriter to spell out requirements that are specific to the risk and are uniquely individualized to each policy. The requirements typically far exceed the Federal Aviation Regulations for pilot requirements and can include minimum experience, additional training, annual school, or an Instrument Proficiency Check Ride. The pilot requirements outlined by the underwriter become part of the Insuring Agreement. This ability to manuscript this portion of the policy empowers the underwriter to control the risk by increasing the requirements or entice the selling of

the policy by applying low or even no pilot requirements. In a “soft” market when companies are competing for same risks, underwriters may promote no pilot requirements as a competitive factor and broader coverage for the Insured. From the agent and brokers view, the “no pilot requirements” are highly sought after as a policy enhancement. This reduces possible E&O exposures. It may be important for a broker to help promote and advocate a pilot requirement to prevent an unqualified or underqualified pilot from operating an aircraft that potentially may result in a loss. The broker should be an advocate for a safe operating environment for his client. In recent years, the mainstream view includes the pilot requirements as part of the Insuring Agreements. In theory, if a pilot fails to meet the pilot requirements then no coverage would exist and any claim, therefore, would be denied. When a policyholder engages in an activity with a pilot not meeting the requirements, this triggers a failure of meeting the terms and conditions and, therefore, the prohibited operation takes place outside the scope of the risk that the underwriter intended. Accordingly, the policy no longer applies. The insurance company has the right to limit its liability through provisions, including pilot requirements, which must be enforced. However, there are exceptions to the pilot requirements. Although the mainstream view is they are part of the Insuring

In a “soft” market when companies are competing for the same risks, underwriters may promote no pilot requirements as a competitive factor and broader coverage for the Insured. Agreement, some states or courts require a causal connection between the loss and the requirements. If this legal principle applies, the insurer would have to prove a connection between the pilots’ failure to meet the requirements and the loss. Even though the insurance contract may not explicitly require a causal connection between the breach of the pilot agreement and the accident, public policy may require a finding of coverage unless a causal link existed and can be proven by the company. The prevailing view is that pilot requirements are an expressed effort for increased aviation safety, resulting in public safety. Through the years insurance companies have promoted training and proficiency through pilot requirements in an effort to decrease losses. Although safety is a primary function of the FAA, some of the best advancements in safety have been a result of insurance companies working to decrease losses. Each company would have to digest their own results, but one would expect a similar conclusion from the data of most companies: that pilot requirements and training have a direct correlation to loss ratios. The Military understands the importance and uses repetitive training in all facets, including pilot training, to attain a higher level of proficiency. Given the number of flight hours and missions performed, the Military has an exceptional record. The Military does not reduce its standards during a “soft” market, a lesson that might be learned by the insurance industry. I believe we can all agree that qualifications and training decrease risk and improve the safety of the Aviation Industry through higher standards.

underwriters DIVISION REPORT

B A

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C A R E

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M E N

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D E N Y

CROSSWORD ANSWERS, PUZZLE ON PAGE 28

MANAGING GROUND ACCUMULATION RISKS POST TRIPOLI!

Mr Suki Basi - MD Russel Group

n this white paper, Russell Group Limited focuses on Airport Ground Accumulation hazards and risks, which we believe are rising significantly due to a range of emerging social, environmental, economic and political factors. In today’s increasingly complex aerospace environment the paper starts by focusing on the most granular airport hazards and concludes with an overview of the challenging Political Risks environment and natural perils facing aviation, hull war and political risk underwriters in 2016. It all Started on a Grassy Field!

The earliest aircraft take-off and landing sites were grassy fields. Later, concrete surfaces would allow landings 24/7. The title of “world’s oldest airport” is disputed, but College Park Airport in Maryland, US, established in 1909 by Wilbur Wright, is generally agreed to be the world’s oldest continually operating airfield. It’s safe to say that Airports have moved on since then! For example, Incheon International airport, is the largest airport in South Korea, the primary airport serving the Seoul Capital Area, and one of the largest and busiest airports in the world. The airport has a golf course, spa, private sleeping rooms, ice skating rink, a casino, indoor gardens and a Museum of Korean Culture.

The Airport’s authorities claim that average departure and arrival takes 19 minutes and 12 minutes respectively, as compared to worldwide average of 60 minutes and 45 minutes respectively, ranking it among of the fastest airports in the world for customs processing. An airport like Incheon International Airport is clearly a complex and potentially hazardous environment but all airports - large and small - share increasingly complex risks that underwriters need to understand, as we will learn in this white paper. The need to understand exposures is becoming more

Top 10 Busiest Airports by Flights

Airports route map

pressing as international regulators take a closer look at airport safety management strategies – potentially a threat but also a major marketing opportunity for client-focused underwriters. Airport Safety Risk Management

The Airport Cooperative Research Programme (ACRP) recently published its ACRP Report 131: A Guidebook for Safety Risk Management for Airports (referred to from now on as ACRP Report), which provides guidance on conducting the safety risk management (SRM) process, one of the four components of a Safety Management System (SMS). According to the 2015 ACRP Report’s authors, with traffic growth, the number of accidents tends to increase if the level of safety remains constant. In such an environment there is a more pressing need to preserve public confidence so the aviation industry, using new technologies and approaches like SMS, needs to further reduce the chances of accidents. The ACRP notes that: “As the industry becomes more complex and aircraft become more sophisticated, demands on airports will increase. The FAA is developing regulations to require 14 CFR Part 139 certificated airports to develop and implement SMS. This is a result of the International Civil Aviation Organization (ICAO) requirement for all member states (the United States being one) to develop and implement SMS for the regulator and the international airports of member states.” Safety Management Systems: A regulatory Requirement?

A key point that underwriters will note is that “The airport industry knows that SMS will become a regulatory requirement. SMS will require more knowledge and training for airport staff and stakeholders.” This point appears to be backed up by Joseph Strickland, global head of aviation for Allianz Global Corporate and Specialty Americas, one of the largest insurers in the world with operations in 14 countries, who is quoted in AIN online

as saying: “The invitation for an insurer to visit the insured doesn’t happen as often as it should, especially with single-aircraft operations, said Strickland. Sometimes dubbed “safety engineering visits,” these onsite meetings are typically reserved for the larger operations. But one reason to invite the insurer out is when a flight department wants to implement a safety management system (SMS). Insurers often have experienced people who can walk the flight departments through the SMS process. “A growing number of flight departments are implementing SMS,” said Strickland. “It’s becoming another key area where pilots can enhance their operations through standardization and best practices. It’s important, and it should be seen that SMS is a path toward safer operations.” The Federal Aviation Authority (FAA) recommends a 5-Step Safety Risk Management (SRM) process used by many airports carrying out an SMS. The 5-Step SRM process follows this sequence: 1. Describe the System 2. Identify Hazards 3. Analyze Risks 4. Assess Risks 5. Mitigate Risk At a very granular level, airports are subject to numerous hazards and risks that require large Checklists on a risk register: checklists prepared for self-inspections may include the presence of Foreign Object Damage (FOD), pavement deterioration, and faults in the lighting system and signs. An airport operations inspector is continuously searching for anything that may pose a safety risk to airport operations. Examples of hazards in this category include vehicles speeding on the ramp and equipment parked outside designated areas. For example, an airside driver striking an aircraft and causing minor damage during a ground handling operation. Or take another example (ACRP report) - an airport decides to build a new terminal. “During the planning and design phases, the location and the size of the terminal are defined, and any impacts to the airfield. Many potentially, permanent hazard conditions can be avoided through an effective

Airports Exposure

planning phase SRM—line-of-sight limits on the Air Traffic Control Tower (ATCT) personnel, airspace impacts, potential interference with existing and/or proposed surveillance equipment are just a few.” Often it is important to analyze a range of outcomes. For example, when dealing with bird strikes, control actions to address large birds causing damage to aircraft may not mitigate risks associated with smaller species. Smaller airports may find the National Transportation Safety Board (NTSB) database useful. The NTSB keeps records for all aircraft accidents investigated in the United States and its territories and for aircraft registered in the United States. From January 2008 to April 2014, there were more than 7,800 General Aviation (GA) aircraft accidents in the United States; presumably, most of the aircraft involved were operating to and from GA airports. (NTSB aircraft accident database) Micro Ground Accumulation Risks

These ACRP Report examples highlight a number of potential hazards including foreign Object Damage (debris) and even faded or removed pavement markings. Having many workers and much equipment in a confined area, often under substantial time pressure, creates an environment in which injuries and aircraft damage may occur. Major system changes at the airport are sources of risks. Some typical examples of such changes include: airfield improvements: runway rehabilitation and extension, construction of new taxiway, renovation of terminals, operation of a new large aircraft: B747-800, A380, changes to airport management, and rapid airport growth as aircraft operations and passenger numbers increase.

According to one white paper - The Wingman – A Portable Wingtip Collision Avoidance System – “Wingtip collisions have a wide variety of causes as well as levels of severity. They occur in taxi, hangar, and runway areas, and are a problem in both GA and Commercial Aviation. The causes of these incidents, although varying, can often be traced back to a loss of situational awareness by the operator in either of these situations.” The cost of even a small number of significant wingtip collisions can be enormous for an airline. Other indirect costs such as the cost of cancellations, loss of public image, and investigations can be far greater or more impactful than the direct physical damage. (Source: Vandel, 2004) The cost for GA pilots is also a significant burden on the industry. Smaller scale incidents such as hangar rash are frequent but also more likely to go unreported in hopes of avoiding responsibility. Hangar rash is an aviation term that refers to minor incidents involving damage to aircraft that typically originate due to improper ground handling in and around a hangar, other aircraft or objects on the ground. Such aircraft are typically considered as good as new once repaired or re-skinned. Nevertheless, the occurrence of such incidents can cost thousands of dollars due to various replacement fees. Wingtip collisions are very frequent. Each incident results in a loss of time and money for customers, operators, and owners. Presently, there are 27,000 recorded ramp incidents annually in commercial aviation, equal to approximately 1 for every 1,000 departures (Flightcom, 2013). Collisions on a small scale between aircraft and hangar walls occur daily and incur large costs for repairs as stated previously. The direct costs of ramp damage to a Boeing 737 wingtip, for example, are estimated to be circa $256,000.

Hangar Losses

The total insured loss from a hangar that collapsed under the weight of snow at Dulles airport in 2010, crushing the aircraft inside, was estimated at up to $440mn at the time. The collapsed building was condemned following the incident. The extreme weather conditions in 2010 caused a string of further hangar collapses across the eastern US and prompted catastrophe modelling firm Equecat to estimate the total insured cost of the storms at over $2bn. The storms also took out Dulles Aviation’s hangar at Manassas Regional Airport, but there were no people or planes in the 24,000 square foot building. Meanwhile, according to an Insurance Insider report from 2010, the landmark hangar at Salisbury airport in Maryland was destroyed by the snow. About 85 percent of the roof on the wooden building - the central piece of the area’s first full-service airport - caved in. Jonathan Stern of Schnader Harrison Segal & Lewis discussed the insurance ramifications of the Dulles Hangar incident in AIR Online remarking that several aircraft were insured at stated values higher than the actual market value of the aircraft. While this provided windfalls in the millions of dollars to some owners whose aircraft were totalled in the hangar collapse–and caused at least one other owner to sue his insurer when the insurer refused to total the aircraft–this practice could have insurers looking more closely at bringing stated values closer to market values. “The stated value is intended to be an estimate of the aircraft’s fair market value in used condition,” said Stern. “[Stated values] tend to be overstated, creating a moral hazard because the aircraft owner actually stands to gain by a total loss of his or her airplane…This was a lesson learned for the insurance companies, which might pay out $45 million on a given airplane because of the stated value, but only have a potential right of recovery of $32 million against the responsible parties because they’re entitled only to fair market value in a tort suit.” Macro Ground Accumulation Risks

As we have seen, the role of the modern day underwriter is becoming more complex as the increasing relevancy of systemic risk focuses attention on more sophisticated exposure management techniques. Globalisation, interconnectedness of economic, environmental, social and political factors, and new technologies and aircraft designs place the onus on underwriting professionals to be better informed. War and Terror Risks

Looking at the wider picture, in Libya two years ago,

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militias armed with shoulder-launched missiles battled for control of the country’s main airport. In Africa, the entire Sahel region is awash with weapons that include portable air defence systems leftover from the ousting of Moammar Gadhafi. Before Tripoli, underwriters had not been thinking too much about ground accumulation, there had been very few events that had involved aircraft in the same place. There was an event in Jordan in the 1970s where three planes were high jacked and destroyed, Sri Lanka in 2001, and 9/11 but very few airport attacks so Tripoli has been a game changer. Mitiga International Airport in Tripoli is still closed – there are aircraft in the airport that are reparable but deteriorating because they can’t be maintained. Tripoli showed underwriters that they did not have a good understanding of their accumulation.

Airports in Areas of Political Risk

Then there’s Syria’s civil war, in which thousands of soldiers have defected and set up new battalions that have shot down military helicopters and jets. Volatile territories stretching from West Africa to Central Asia are putting at risk both commercial and light GA flights from ground-based weapons. The destruction of Malaysian Airlines Flight 17 demonstrates the dangers of flight across unstable territory where sophisticated weapons might be available to militants. When it comes to airport ground exposures, the Aviation Specialty Insurance class is confronted with the emergence of new political and terror risks, which are increasingly volatile and often connect a range of different event scenarios. What these risks have in common is that hostile states, terror groups and individuals frequently employ terror tactics that disrupt transport hubs, lines of communication and methods of travel, which is why airlines and airports are often a target, as happened in Tripoli recently.

are therefore diverted away from an airport’s infrastructure or people the results could be potentially catastrophic, which is why more underwriters are becoming interested in local social, economic and political changes – often represented by risk maps - on the ground. Airports are complex and increasingly stressful environments not just for the passengers that pass through them but also for the workers that work there 24/7. Physiological stressors can include early shifts, night shifts, weekend shifts, changing working hours, long working hours, and very intensive work conditions. Corruption alone is not solely responsible for poor working conditions – other economic factors, including inequality and political strife play their part but alert underwriters will need to factor such hazards into their global risk map. Connected World, Connected Risk

In today’s increasingly connected world, technological disruptions have the potential to cause major business interruption issues. Insurers will need to factor IT disruption event scenarios into their risk and exposure models. As digitalization continues apace and global networks insinuate their way into all walks of commercial life, the threats and damage caused by deliberate or mistaken breakdowns in information technology systems are likely to increase exponentially. From an airport operator’s point of view, they might want to consider the use of augmented cyber insurance products to safeguard against such risks. The key word here for Underwriters is “connected.” There is a wider concern about cyber exposures more generally and the impact on business interruption. A UK Cabinet Office spokesman has said that cyber-attacks are one of the “top four” threats to the UK’s national security. Corruption

Can corporate and institutional corruption be an airport/aerospace risk? The answer is yes, potentially. We are currently witnessing a global interplay of risk drivers overlaid by corruption. In markets globally - whether you call them emerging markets, growth markets, the N11 and so on - we see medium or extreme risks of corruption. Systemic corruption drives societal and political risk, which can often lead to civil unrest. This is obviously something that for every sector, including the aviation sector, is a major risk. How might this manifest itself as an airport hazard? Corruption and fraud divert essential resources and capital away from infrastructure and investment. Whether the investment is in the tools and assets needed to maintain an aircraft or training required to maintain ground crew quality standards the impact is potentially the same. If essential resources

Natural Perils

According to the 2014 book Volcanic Hazards, Risks and Disasters, volcanic activity also has caused significant ad-

Icelandic Volcanic Activity

verse effects to numerous airports worldwide with local to far reaching effects on travellers and commerce. The most common effect is temporary operational disruption ranging from flight cancellations to airport closures for periods of hours to weeks. The main hazard is ash fall. The accumulation of only a few millimetres of ash on runways is sufficient to force temporary closure of an airport although disruptions have also been caused by air-born ash in the vicinity of airports without the deposition of ash on the ground. The accumulation of more than a trace amount requires removal of the ash in a manner that prevents it being remobilised by wind and aircraft. More than 300 people were killed when devastating floods hit the Indian state of Tamil Nadu in December 2015. The rains have now stopped but businesses have been decimated, with factories, shops and offices destroyed. Photographs of Chennai’s airport showed planes grounded by floodwater with many passengers stranded. The airport was closed with flights cancelled and diverted. The estimated insurance bill is $30 million caused by the floods. Lloyd’s has tested the scenario where Heathrow airport is flooded. This scenario is based on a heavy rainfall event moving from west to east across south-east England resulting in extensive flooding of the River Thames from Oxford to Teddington with secondary flooding on the River Colne from Ruislip south and surface flooding on the western and southern edges of Heathrow. The total flood extent covers 194 km2 and would cause significant impact on the major populated areas of Oxford, Reading, Slough, and the Henley areas of western London. Surface flooding will cause disruption to Heathrow Airport with flooding from the west encroaching into Terminal 5 and the end of both runways. Further flooding from the south will affect cargo transit and handling facilities. The im-

pact of pollutants should also be considered for indirect losses at London Heathrow airport, however, the liability associated with potential pollution episodes will be difficult to calculate. The other point to make here is that as demand for international air travel grows, governments come under increasing pressure to build new terminals, runways (Heathrow) or even new airports (Thames Estuary aka Boris Island). Political pressures do not always lend themselves to good policymaking particularly when it comes to environmental decisions about airports. A New Peak Aggregate Exposures Solution

Many of the issues that we have raised above require an integrated approach to underwriting risk management. It will become more important to have real-time knowledge of underlying accumulated exposure at the time of risk pricing, to encourage more informed risk selection decisions. Russell Group is currently developing a cloud-based Ground Accumulation service that caters to the requirements of Aviation and Political Risks underwriters concerned about their Ground Accumulation war and natural perils peak aggregate exposures. The Aviation Hull War market is written by both Aviation and Political Risk teams and it is for them to understand where their peak accumulation exposures exist. The data that underpins this new Ground Accumulation service shows where underwriters’ peak exposure accumulations lie.

About Russel Group Russell Group is a leading risk management software and service company that provides a truly integrated risk management framework for (re)insurance clients operating across the specialty classes through its ALPS suite of products. Underwriting risk is, or should be, the primary concern of specialty (re) insurance companies in quantifying portfolio exposure, pricing risk, optimising reinsurance purchase and evaluating the amount of capital needed to support the portfolio. Russell through its ALPS product provides an underwriting risk framework which delivers a complete and integrated understanding of underwriting exposure, capital utilisation and portfolio return on equity. If you would like to learn more about Russell Group Limited’s ALPS solution for aerospace loss exposure management, please contact sbasi@russell.co.uk or rborg@russell.co.uk

www.russell.co.uk Heathrow and South West Floods

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Aviation Insurance: Reaching Maturity alexander t. wells, ed.d - AIA Education Consultant

n my last article, I discussed the early years of aviation insurance from the late 1920’s to the late 1940’s. During the early 1950’s there was enough competition to serve the general aviation market but only the two major groups, USAIG and AAU, to provide the essential capacity in meeting the insurance needs of scheduled airlines and aircraft manufacturers. Although additional insurance companies were added to the pools, there was still not enough capacity to meet the needs of the coming jet age. The first test came in 1954 when a Boeing 707 took off from Renton, Washington to Baltimore, Maryland on a test flight. This development presented an unprecedented challenge to the USAIG when the group was called upon to provide insurance coverage of over $5 million on a single plane in test flight. In the years to follow, USAIG and AAU would not only utilize the full capacities of their member companies but also use each other and the world aviation insurance market, most notably, Lloyds and other European insurers. The enlarged underwriting

capacities of the two groups did not meet the entire insurance requirements of the aviation industry, particularly in the area of products liability for aircraft manufacturers. Since the early 1950’s, the liability of an aircraft manufacturer to a third party for allegedly defective products became a serious problem. An aircraft crashing into a heavily populated area with resulting fire and explosion could prove to be disastrous to the manufacturer of the aircraft or of the component part which may have caused the accident. Furthermore, grounding liability coverages were not available on the market at that time.

Consequently, in 1952 certain members of the Aerospace Industries Association became concerned and initiated a study of the aviation insurance market. To explore the possibilities of providing adequate insurance protection against products liability, the Aircraft Builders Council, Inc., was organized. The council developed a plan of aircraft products liability insurance and the so-called ABC Plan became operative in 1955. The Plan provided manufacturers with third-party liability insurance for damages arising out of the products hazard, with a limitation of $5 million for personal injury or property damage for any occurrence and, in addition, third-party liability insurance for damages arising out of the products hazard for loss of use of completed aircraft caused by grounding, up to a limit of $5 million. The insurance was available for a qualified manufacturer of aircraft, aircraft engines, propellers, missiles, and component parts. Coverage applied to both the sales of military and commercial aircraft, aircraft parts, and missiles. Military and commercial coverages could not be purchased separately. The Plan was underwritten by two domestic mutual companies and Lloyd’s and British companies. The two

domestic companies were Liberty Mutual Insurance Company and Employers Mutual of Wausau. Another pool, Aero Associates, which had been formed in 1949 added to the extremely competitive situation in the late 1940’s and early 1950’s. Consistently losing money for the next four years they eventually ceased operations in 1958. Despite the enormous growth of the aviation industry and the vast increase in insurance that such growth entails, there were now only two American groups. It was against this background that the subcommittee on Antitrust and Monopoly of the Committee of the Judiciary of the United States Senate started its investigation of the situation and began public hearings which lasted from August 6, 1958, through August 15, 1958. Throughout the hearings, the subcommittee indicated that its overriding concern was with the extent and effectiveness of competition and monopolistic elements. In summarizing its findings, the subcommittee made its conclusions and recommendations in a report published in August, 1960. The major items among its conclusions were: 1. Based on a Civil Aeronautics Board report that criticized the concentration of aviation insurance the subcommittee agreed that despite the phenomenal growth of the aviation industry since the war years there were only two groups and not enough companies and capacity to serve the continued growth in the industry. 2. Adequate reinsurance facilities had not developed in the United States. 3. State regulation of aviation insurance was not completely effective in eliminating the restrictive market practices discovered by the subcommittee. No specific actions aimed at correcting these recommendations were undertaken by the federal government or by the New York State Insurance Department. However, the Justice Department and a Federal Grand Jury later conducted lengthy investigations and hearings on the allegations of the subcommittee. The conclusion of both was that no action was warranted. The aviation insurance industry did react to the hearings by taking every precaution to ensure that there would no longer be any hint of impropriety in competitive practices. Fortunately the 1960’s were a period of expansion, modernization, and increasing complexity in all segments of the aviation industry. The decade began with about 79,000 general and commercial aircraft and totaled 134,000 by 1970. By 1969 man had landed on the moon, airline traffic soared, fed by a strong economy and the Vietnam War. By the mid-sixties the major carriers were placing orders for wide-body jets to carry the ever increasing number of passengers.

aviation history As for general aviation, the 1960’s were boom times, with more pilots using more airplanes than ever before. General aviation manufacturers were having a heyday, introducing new models and producing an average of more than 9,000 airplanes per year. Four airplanes in particular that were introduced in the 1960’s, the Cessna 172, the Piper Cherokee, the Beach King Air 90, and the Lear 23 proved to be prototype designs for years to come. New aircraft shipments hit a high of 15,768 units in 1966. Significant changes also took place in the aviation insurance market. New underwriting groups were formed and the market expanded and became more competitive. General Aviation Underwriting Corporation was organized in Dallas, Texas in 1962 and was composed of 10 insurance companies specializing in general aviation risks. A pool by the name of Aviation Insurance Managers (AIM) was formed in 1962 by Southern Marine & Aviation Underwriters, surplus lines brokers, and served as aviation insurance managers for eight companies. AIM was headquartered in New Orleans with offices in Los Angeles and San Francisco. Another company, American

Aviation Underwriters, based in Houston, Texas, included two companies and was managed by Cravens, Dargan & Co. Six other groups were formed during the 1960’s, all primarily seeking business in the growing general aviation market. There were Airway Underwriters, Ann Arbor, Michigan; Aviation Office of America (AOA), Dallas, Texas; International Aviation Underwriters, Dallas, Texas; Northwestern Underwriters, Portland, Oregon; Southeastern Aviation Underwriters, Atlanta, Georgia; and Transport Indemnity, Los Angeles, California. In addition, there were a number of independent companies entering the market or expanding their operations. In 1962 the direct writer, Aviation Employees Insurance Company (AVEMCO) became the designated insurer for the Aircraft Owners and Pilots Association (AOPA) replacing American Mercury Insurance Company whose relationship with AOPA covered 25 years. The Ohio Casualty Company, Royal-Globe Insurance Companies and the Insurance Companies of North America expanded their writing and opened regional offices staffed with aviation underwriters. At the same time, the mutual insurance companies became more active in the aviation market. The most prominent were Liberty Mutual of Boston, the Lumbermen’s Mutual Casualty of Chicago, and the Employers Mutual of Wausau. The entry of these numerous groups and companies into the market during the 1960’s, particularly in the general aviation field, fostered a high degree of competition for business and as a result, caused a reduction in premiums for all classes of business. Reinsurance facilities also expanded. Up to the 1960’s at least 50 percent of the American aviation insurance business was reinsured with a foreign market, primarily British companies and Lloyd’s. In 1961 the American Mutual Reinsurance Company organized a “Scheduled Airlines Pool” to write excess liability coverage. Insurance Company of North America also expanded its reinsurance of major air carriers. Other reinsurance organizations, such as the Excess and Casualty Reinsurance Association, General Reinsurance Corporation, also provided additional reinsurance capacity for all lines of aviation insurance business.

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Kern Wooley, P.C - Los Angeles, CA

Ian Wrigglesworth

Guy Carpenter & Company, Inc. - London

Lawrence Wright

Wright & O'Donnell, P.C. - Conshohocken, PA

Larry York

Larry York Aviation, LLC - Flower Mound, TX

Chris Young

ARGUS International, Inc. - Cincinnati, OH

Jennifer Zak

Shannon & Luchs Insurance Agency, Inc. Gaithersburg, MD

Gary Sterling

SIMCOM Aviation Training - Orlando, FL

We would like to thank the 2016 AIA Corporate Members. Thank you for your dedication and support of the Aviation Insurance Association.

Unmanned Aircraft Systems (UAS) â&#x20AC;&#x153;Adjusting to changeâ&#x20AC;?

Trehane Oliver - McLarens Aviation

he burgeoning UAS sector has generated a considerable amount of media interest in recent months and though it is relatively early for the UAS insurance market, all indications suggest that usage will dramatically increase in the next few years. Indeed, as a clearer regulatory framework is put in place, the scope for drone use and insurance is significant. From a commercial perspective, there are few industries that havenâ&#x20AC;&#x2122;t contemplated using drones in some form, from aircraft inspections to parcel delivery, to filming and even police work. At the same time, the potential for the consumer UAS market is so huge that it is not overstating the situation to suggest that within a matter of decades many families could have their own drone. As with all technological advances, the insurance industry has reacted by developing its own products to

meet the needs of the sector. Having been involved in adjusting claims from the early prototype days of UASs, we have seen the insurance products evolve from adapted aircraft policies aimed at manufacturers and a relatively small number of operators with distinct uses and heavier equipment to those aimed at the growth of light UAS operators. So as the UAS insurance market continues to evolve, what does this mean from a claims

With the sector set for fast growth and with relatively large numbers of units-a distribution model built around web portals is already developing within the insurance industry.

adjusting perspective? The rapid expansion of the new light sector provides both opportunities and challenges for aviation loss adjusters. For specialist adjusting companies such as McLarens Aviation, a lot of thought has gone into establishing processes that match the requirements of the market. The relatively low values of much of the equipment that is currently in use means that the resultant premiums generated per unit are modest. As such, it has been necessary to develop a claims handling solution that utillizes the expertise of a specialist adjuster and at the same time provides a rapid turnaround to keep claims handling costs at a reasonable level. With the sector set for fast growth and with relatively large numbers of units and operators being contemplated, a distribution model built around web portals is already developing within the insurance industry. Though common in areas such as household and motor insurance, this is a relatively new prospect for the aviation sector. The traditional model of aviation adjusting will also need to adapt. Electronic transfer and upload of data, photos and claims information is proving an important factor in providing a good service for a potentially large volume of claims in comparison with other aviation sub sectors. The ability to get full and accurate information from the outset is a critical component of the process we have developed and to date has proved to be effective both from the operator and insurers perspective. Another interesting point about dealing with comparatively low valued equipment – indeed the payloads are normally more significant in terms of value than the actual platform – is that there are invariably going to be questions regarding reparability in the case of many losses. Aside from parts held by manufacturers, there are currently very few spare parts available on the open market. It is highly unlikely that the market will develop in the short term and in terms of adjustment we are therefore more likely to be looking at replacement of equipment rather than repair. It is also worth noting that the majority of losses we have dealt with to date have been total losses. Of course, as uses for UAS equipment expand, so will the claims scenarios. Close proximity of expensive third party property and the potential to cause bodily injury will only increase. Indeed, as recent news would suggest, misuse of drones by consumers is no doubt something that we will see. As we recently saw in the UK courts, some users have fallen foul of the law after showing “flagrant disregard” for people’s safety by flying over busy, built-up areas such as football stadiums and even Buckingham Palace. As such, the claims adjustment will almost certainly focus on both damage to the physical flying

industry news

machine, but also the liability of the operator for any damage it may do. Claims handling will need to combine both of these elements to provide a seamless and cost effective response to the insurer. From dealing with issues ranging from composite materials to space tourism, aviation loss adjusting has always posed challenges and the UAS sector is no different – it is a highly technical niche that requires a bespoke approach. But what is particularly interesting about the development of the light UAS market is the volume aspect. As such, loss adjusters must be flexible and willing to change and adapt as the sector does. It is an exciting time in this respect and we look forward to playing a full part in the sector as it goes from strength to strength. This article was first published in Insurance Day magazine and is reprinted by permission.

About McLarens Aviation McLarens Aviation is a leading provider of risk, survey and loss adjusting services to the global aviation industry, specialising in all types of aircraft. Clients include the aviation insurance market, aircraft operators, airports, maintenance and repair organisations (MROs), financiers, lessors, oil and mining companies, law firms and regulators. It has a team of over 75 in-house aviation specialists, operating across 32 offices, in 22 countries across the globe and manages in excess of 3,000 insurance related assignments each year. McLarens Aviation representatives will be attending the 2016 AIA Annual Conference in Miami.

board of directors PRESIDENT

Director, Attorneysâ&#x20AC;&#x2122; Division

Director-Elect of International

david Sales

Deborah Elsasser

Bruce Carman

CGNMB LLP david.sales@cgnmb.com

Clyde & Co US LLP deborah.elsasser@clydeco.us

Cathedral Underwriting Ltd bruce.carman@cathedralcapital.com

vice PRESIDENT

Director of Claims Division

Director-at-large

Paul Herbers

Nic Stratta

Christopher S. Morin

Cooling & Herbers, P.C. pherbers@coolinglaw.com

Aviation LS nic.stratta@aviationls.com

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

Treasurer

Director-Elect of Claims Division

Director-At-Large

Christopher R. Zanette

Steve Teller

ZANETTE Aviation Insurance Service, Inc. chris@jet-insurance.com

Aviation LS steve.teller@aviationls.com

SEcretary

Director of Reinsurance Division

immediate past-PRESIDENT

Ian Wrigglesworth

FRANKLIN F. BASS

Jim Gardner

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

Guy Carpenter & Company, Inc. ian.wrigglesworth@guycarp.com

Director of Agent & Brokers Division Director, Underwriters Division Jon Doolittle

Ernest De Spain

Matt Rowley

Berkley Aviation, LLC mrowley@berkleyaviation.com

XL CATLIN franklin.bass@catlin.com

Executive Director Mandie Bannwarth

Sutton James, Inc. jdoolittle@suttonjames.com

W. Brown & Associates edespain@wbais.com

Director-Elect of Agent & BrokerS

Director of International Division

aia general counsel

Luke Uithoven

Marcos Shuster

ray mariani

Kimmel Aviation Insurance Agency, Inc luke@kimmelinsurance.com

Alegre, Calderon y Marquez marcos.shuster@gmail.com

www.aiaweb.org

Aviation Insurance Association mandie@aiaweb.org

Murray, Morin & Herman, P.A. rmarianilaw@gmail.com

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Call Mandie Bannwarth at 913-627-9632 for additional information.

ACROSS

DOWN

1 A Lawsuit 7 Hostile 12 The giving of personal property by one person to another in trust 14 Government agency regulating aviation (abv.) 15 The activity of creating beautiful things 16 Initials for the name of a U.S. Senator from Massachusetts 17 Railroad (abv.) 18 To the same extent or degree 19 ______ Fox. Hall of Fame second baseman 23 Skillfully executed 25 He (in Spanish) 26 The distance between two points 28 Organization of experimental aircraft (abv.) 29 Position upon 31 A small piece, portion or amount 33 Having no legal binding effect 36 First name of the Manager of the Kansas City Royals 38 In the direction of 39 Government organization dealing with pollution (abv.) 40 A fighter pilot with five or more aerial victories 42 A unit of length equal to 5,280 feet

44 47 48 49 52 54 55 56 58 60 61 62 64 66 68 69 71 72

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1 Relinquishment of property without designating who shall take possession of it 2 Caution 3 A legal right to ownership 4 Land of Lincoln (abv.) 5 High frequency directional range indicator 6 Cornhuskers (abv.) 7 An outside banking device (abv.) 8 Non-instrument flight (abv.) 9 Portion of a premium for which the policy protection has already been given 10 A naval officer ranking above a captain (abv.) 11 The direction in which the earth rotates on its axis 13 Lincoln is the capital of this state (abv.) 18 Association of car owners 20 Legum Baccalaureus (abv.) 21 Being prevented or “stopped” from denying the existence of coverage 22 Not working or functioning 24 Abbreviation for “each” 27 Normal or ordinary

30 Not one nor the other 32 A word used to refer to a nonhuman being 34 Author _____________ Fleming 35 Any of a group of colors whose hue resembles that of blood 37 Major American airline based in Atlanta (abv.) 41 The likelihood of occurrence of an event 43 Once the largest employer in Miami, this airline ceased operations in January 991 45 Predecessor of the A&P Certificate (abv.) 46 A reckoning or score 50 Abbreviation for gym glass in high school 53 _________ chi. A Chinese exercise used for one’s health or defense 57 To refuse to believe 59 Close in time, space or position 63 A wooden club used to hit a ball 65 A type of short range radio navigation system used in aviation 67 used as the indirect object of a verb 69 German Schutzstaffel in WWII (.abv) 70 In a direction toward

crossword puzzle 1

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26 31

39 44

28 34

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APRIL 29 - MAY 2, 2017

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